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Copy trading has emerged as a new preferred solution for people who want to start their trading journey. Copy trading is associated with plenty of advantages, as it offers you the possibility to have the expertise of seasoned investors and have similar results. This is one of the reasons why copy trading has evolved so much recently, attracting the attention of beginner investors who don’t want to put that much effort at first and wish to diminish the chances of losses.
Usually, at first, starting the trading experience has the same patterns: individuals spend many hours researching, being confused about the complexities, and making several mistakes. The good news is that copy trading keeps all these worries away and offers you the possibility to start your journey much faster while learning from seasoned experts. Even though copy trading doesn’t remove all risks, it does a good job of being a better solution for beginners.
In this article, we will analyze copy trading in more detail. Keep reading to learn more.
Understanding copy trading
Copy trading makes trading much more accessible to people who otherwise might not have the courage to start trading as they lack technical understanding and experience. However, copy trading removes some of these worries. Simply put, when you consider copy trading, you are copying the trading activities of experts so that you can benefit from the same results.
When an experienced trader sells or buys an asset, copy trading is copying the same activity in your account. Thanks to this approach, you can learn a lot of insights that help you understand the benefits of this method much faster. Copy trading is part of social trading, a process that emphasizes collaboration among several traders. Social trading is great, and thanks to it, traders can learn more about market strategies and movements.
You might also hear about the term mirror trading, even though it is more rigid. The difference between copy trading and mirror trading is that in mirror trading, the strategies are executed by a system or algorithm, while humans are behind the notion of copy trading. Another concept is automated trading, which is driven by algorithms, and because of this, they remove the need for human intervention. Copy trading is a mix of technology and the expertise of human traders.
What are the key benefits of copy trading?
Copy successful strategies
When first starting your copy trading journey, you might feel overwhelmed and alone in this space. However, copy trading can remove these disadvantages, as here you are just copying the actions of experienced traders. Otherwise, you would need to do research to gain access to all these strategies, which sometimes can take several years to understand. Additionally, you might still not figure out what you should do in your trading experience, as you can always learn faster if you are doing something by yourself while making mistakes.
Save time
Trading doesn’t involve the easiest experience, and it requires much analysis, hours of research, and being able to stand the risk. This implies offering many hours to trading. However, if you have a family and a full-time job, you can feel that trading becomes overwhelming. Luckily, copy trading can make the process easier, as it automates many tasks, which makes trading more accessible. After you choose the trader, you will only mirror their actions, and in this way, you can save plenty of time.
Portfolio diversification
Thanks to copy trading, you can also benefit from portfolio diversification. Diversification means spending your investments on more assets to manage better risks. This applies even more to cryptocurrencies, whose prices can fluctuate in a matter of hours. But if you are copying the actions of multiple traders, you can have access to several strategies and assets. In this way, you will benefit from a diversified portfolio and won’t need to have a great knowledge of every market segment, be they stocks, forex, or crypto.
To whom does copy trading apply to the most?
Beginners
Copy trading is especially beneficial for beginners, to whom all the notions of trading can seem overwhelming. However, because they have the guidance of seasoned investors, they can improve their trading experience and learn more insights from this market sooner.
Investors looking for diversification
Copy trading can also be great for investors who have experience only with a market asset and want to broaden their offerings. In this way, they can also trade in the markets they are not that familiar with and learn everything they need to navigate this space better.
How do you manage risk when copy trading?
Diversify copied trades
Diversification is great to have in several parts of your lives, and it also applies to trading. As we mentioned above, it is better to diversify by considering more assets, and this also applies when choosing traders. To benefit from greater diversification, it can be a better idea to follow various traders and look at their risk profiles and specialization. In this way, you ensure you choose traders with different levels of experience and have the upper hand in case one of them is not performing the way you expected.
As these experienced traders will do most of the trading, you must research a lot of information about them to ensure you make the right decision. Look at their trading strategy, risk score, and performance history. Additionally, it is good to see if their approach suits your investment goals so that you won’t be disappointed later.
Set stop-loss limits
In copy trading, you can also set stop-loss limits to reduce the chances of losses. The majority of trading platforms have this feature, which is great, as it limits risk and adds extra protection.
Wrapping up
Copy trading has increased in popularity lately and offers plenty of advantages to people worldwide, especially to beginners. In copy trading, you replicate the actions of seasoned investors, which gives you access to better expertise while saving time. However, there are also downsides to copy trading, and if the trader makes the wrong choice, you might end up with losses. This is why you must research before considering copy trading to ensure that this strategy is suitable for you.