Strategies are key to every aspect of trading. Whether stocks, contracts for difference (CFDs), or any other form, to make the most successful trades with as much potential profit and minimised risk as possible, you need to make effective strategies a fundamental process in your everyday trading.
Whilst you may be aware of how you can devise your own strategies, and apply them to your trades for greater chances of profit, you may not be aware of how you can invest in other traders’ strategies also.
Investing in a trading strategy is a great way to ensure your trades are executed with the utmost accuracy and professionalism. This is best achieved through copy trading.
In this article, you will learn what copy trading is, and how you can apply it to your trades.
What is copy trading?
Copy trading is a process that involves directly copying the strategies of other experienced traders. It’s natural to feel as if other expert traders possess superior knowledge and skills, and that you’d want to follow exactly what they’re doing on the markets.
This is what copy trading is all about. As opposed to devising a strategy to then invest, you’re essentially investing in a strategy.
Copy trading can be used in a range of different markets, across various trading types. You could very easily use copy trading, for instance, to gain a more accurate basis on which to execute trades of this type, on markets like foreign exchange (forex).
How does copy trading work?
Copy trading can be an easy, accessible process for every trader, regardless of whether you’re an experienced trader yourself, or a beginner CFD trader, for example.
The most important thing to consider, is the trading platform you’re using. The most expert platforms will allow a smooth copy trading process, giving you access to some of the most knowledgeable experts, for accurate copying of their trades.
The copy trading accounts will sometimes be separate to the standard trading accounts, so ensure you create the correct one.
Once you’ve set up a copy trading account, you’ll be able to see a vast range of strategies being implemented by different experts on the platform. All you have to do, is select the strategy you feel fits best for your trading needs, and click copy. This makes you a copying trader.
You then establish the amount of capital you want invested in the strategy, as you don’t have to invest the same amount as the copy trader (the trader you’re copying). Once this has been done, you can then activate the copying.
This will automatically open the relevant positions from the copy trader’s strategy, at the investment price you chose, and at the current market rates. If, for instance, certain positions from the strategy aren’t available for you, they will automatically open as soon as they’re accessible.
Do note, that although you’re directly copying a trader, this doesn’t always mean your returns will be identical. For one, you might have invested different capital, but also, you might have opened the copying position much later than the copy trader, so their gains – or losses – might be greater than yours.
During your copying, you are able to add or withdraw funds from the account, but do be aware, that adding or removing funds will change your active positions due recalculation of position sizes according to the Equity-to-Equity ratio.
You may also be able to set an equity stop loss, to minimise the risk of your copy trades. This will automatically close all positions on a strategy, should the losses exceed a specified amount. Once again, even though you’re copying a trader, you can still have control over the levels of risk for you alone.
Closing a copy trade is simple, and there is always an option for this clearly stated on the platform. Once you end the copy trading, all positions from the strategy will be closed, unless markets are closed, in which case they will close as soon as they open.
Once you learn all the fundamentals of copy trading, you’ll see how investing in a trading strategy can be a potentially highly-profitable form of trading for your portfolio.
How can you invest in trading strategies? is a feature post