Trading in the foreign exchange markets is quite risky, and it requires traders to do a lot of research and permutations till they can be sure that they are making the trade with the least risk. But as anyone could imagine, this is not exactly ideal for everyday forex traders.- Advantages of copy trading
Every day, over $5 Trillion is traded in forex transactions worldwide, which comes to an hourly average of $220 Billion. But only a small portion of this is traded by full-time and institutional traders, the rest of it is traded by part-time, sometimes amateur, traders.
For these people, doing hours of research and calculations before each trade is simply not feasible. This is why trading brokers, like MTrading, began to develop copy trading as an option, in the early 2000s.
In this article, we explore what copy trading is, and the advantages that it presents to forex traders.
What is copy trading?
Copy-trading, also known as social trading, is a technique whereby forex traders execute trades in lockstep with chosen professional traders, imitating their every step as they open and close positions. Forex brokers like MTrading. Typically have special forums where expert traders can offer their strategies for copy traders, for a fee. So, using algorithms specially crafted for the purpose, traders can automatically link funds in their accounts to a professional trader. And any action taken by the copied trader would also be replicated on the copying trader’s account, using the earmarked funds.
For the majority of forex traders who can’t practically commit the hours of research necessary to develop accurate market insights, copy trading is a prayer answered. Not only do they get to save much time, but they also get to piggyback on the expertise of the expert traders whose positions they are copying.
Advantages
Below, we outline some of copy trading’s most significant advantages.
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It helps train new traders
There are a million and one tutorials on youtube and everywhere else on the internet, purportedly teaching all there is to know about forex trading. But the truth is that it’s literally impossible to teach someone everything that they need to know about forex. This is why newbie traders tend to lose a lot of their trading capital, which results in many of them getting discouraged.
However, with copy trading, they can follow market movements in real-time. By monitoring and doing exactly as the expert traders do, they get to learn more and faster than they ever could with any youtube tutorials. More so, they don’t get to lose as much.
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Loss mitigation- Advantages of copy trading
As we’ve said, forex is a risky business. Traders can lose a lot of money if they don’t take the necessary care to develop accurate market insights. And considering that most traders do not actually have the time, or even technical expertise necessary, losses can occur quite frequently. And these numbers add up. But with copy trading, regular traders can significantly reduce their losses by tacking on to an expert trader, whose trades they copy.
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Passive investment- Advantages of copy trading
In the traditional stock market, only a few players are actually active traders – day traders. The majority of investors rather put up their money in mutual market funds, ETFs, index funds, and the like. These offer a bit more stability and less risk, compared to actively trading stocks. The S&P 500, for example, posted a whopping 27% year-on-year return in 2021.
So, without doing much else, investors who simply deposited their money in an S&P 500 index fund would have realized a 27% growth. It’s even more impressive when you realize that of all the professional money managers – hedge funds, who actively trade in the market in the US, only 3 of them outperformed the S&P 500 index. Such is the power of passive investing.
Copy-trading comes the closest to replicating this in the forex market. The market cannot be said to have fully matured until it is huge enough and capable of accommodating everybody. Copy-trading helps with that. Without having to be professionals, or even intending to, folks can simply invest in forex, on MTrading, by pegging their accounts to their preferred professional traders for automatically copied trades, and then sit back and observe.
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Risk management
Risk is an ever-present factor in the markets. On every transaction, there’s just as much chance that you lose your investments, as there is to achieve your desired returns. There are endless indicators to monitor, and missing one vital piece of information can often be quite dangerous. And considering how fast-paced the forex market is, these risks can easily mount up.
Copy-trading helps to ease this burden off forex traders. Instead of having to obsess over whether you’ve considered all that you should, or whether you’ve made the right call even, you can simply piggyback on an established expert trader, whose job it is to reduce your risk exposure as much as possible.
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It fosters community
And finally, copy trading helps advance feelings of community among forex traders. Every other profession on this planet has some form of club or another, where they get to mix and exchange ideas. Doctors, for example, often hold conferences where they discuss cases that they have handled and debate better methods of treatment. This is one of the factors that have helped sustain modern medicine. Doctors from Kuala Lumpur can easily learn techniques from doctors from highly funded research institutes in the US, Saudi Arabia etcetera.
Copy-trading helps replicate this in the forex trading community. It enables traders to communicate with themselves. Newbies can interact within themselves to share what they’ve learned with each other, and they can interact with the experts to gain even more knowledge.
Conclusion
Although forex trading can be quite exhilarating and rewarding, it can also be quite risky and time-consuming, among other factors. Copy-trading empowers traders, newbies, and experts alike, to participate in the possibilities of the market while reducing some of the downsides. On MTrading, we provide a top-rated copy trading, marketplace, where only the best of the best expert traders are selected to guide other traders who intend to copy their strategies.
