Home Day Trading What Is The Significance Of Copy Trading In Forex?

What Is The Significance Of Copy Trading In Forex?

what is the significance of copy trading in forex

Any experienced trader will tell you that the forex market is a community whose members are trying hard to capitalize on the fluctuations of interest rates of currencies. In this community, some participants have a particular knack to foresee price actions. It could be forex expert advisors or human traders. Can the rest of the market leverage the participants to earn a reasonable return too? Absolutely!

A little background on copy trading

In the forex market, one trader can copy the strategy of another one. Some traders may offer such opportunities free, while others may demand a fee. Both way, copy trading is crucial, and it means the difference for many traders. Notably, the need to copy other traders’ strategies arises when one is not in the position to come up with the best strategy at the time. The reason could be that one is not good at market analysis, or one lacks the time for such an activity.

Usually, traders create communities through which they share the strategies for copy trading. Additionally, traders are only willing to copy trades by top traders within the community. Copy trading is also available outside such communities. Some experienced traders allow copy traders but for which they pay. Interestingly, you can adjust the copied strategy such that it fits your preferences better. If you are using a forex robot, likely, you might not be able to adjust the trades.

How copy trading works

Interestingly, copy trading is the reason why the forex market is morphing into a social scene. It is because traders are not only able to share knowledge but also the opportunities to earn income. Although copy trading might seem as easy as it sounds, it is far more than that. Read on to understand how it works.

Initially, copy trading was a cumbersome process. In particular, traders had to rely on emails and chat rooms to communicate and to exchange trades for copying. It exposed many traders to cons and other bad actors. Today, however, there are copy trading platforms that connect copied traders to the copiers. Here, the copied trader does not connect directly with the copier. Instead, brokers and social trading companies (or copy trading platforms) act intermediaries.

how copy trading works

In the first place, the copied trader generates a trade signal that goes through the forex broker to the social trading company (copy trading platform). Next, the copy trading platform sends the trading signal to the follower investor (copier) through the relevant broker. The follower trader and the signal provider could be automated trading systems or humans.  

How do you arrive at the best copy trading platform for the best results?

It seems the copy trading platforms are something every trader should try, but there is a catch. All the platforms provide the same services. Therefore, how do you identify the most helpful?

Look out for what other traders are saying about your preferred copy trading platform

The internet is a gift, and not just for enabling you to participate in the forex market. Instead, the internet allows for the sharing of information about anyone and anything. There are pages on the internet that contain reviews of copy trading platforms. Mostly, the reviews give a personal account of the experiences of other traders with various copy trading platforms. Since you are new to the platforms, such reviews offer an excellent place to start in your research.

The most important thing you should look out for in the reviews is what the traders are saying about the platform’s execution. Given the number of intermediaries between the signal provider and the follower, execution is critical. If the platform in review experiences execution slippage, then you should walk away. It is because you stand to lose a lot of profits, especially in a fast-moving market.  

Does the platform reveal complete information about the copied traders?

A copy trading platform links a copied trader and the copier. Therefore, the most crucial party in the relationship from your perspective should be the copied trader (signal provider). As such, the platform must be upfront with material information about the copied trader like past performance, trade win percentage, and, most crucially, the risk criteria. Many platforms may succumb to the temptation to mask the risk criterial because of the fear that it might not persuade as many investors. 

Nonetheless, this information is too critical to miss. Before joining the forex market, it should be more than clear to you that the market is risky. That is, you are more likely to lose your money than to earn income. In like manner, any considerate copy trading platform should inform you of that effect. 

In conclusion

Copy trading is an opportunity for all traders to earn from the forex market. To the end, copy trading platforms link signal providers to followers. However, it is upon the follower to select the best platform to increase the probability of earning income.


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