|What is copy trading|
What is copy trading? Copy trading is a trading system, in which investors copy their tradings from other traders. In this article, we are going to introduce copy trading and tell you how to use this feature in your everyday trading.
What is copy trading system?
Copy trading system allows investors to copy the strategies of professional traders and trade like them. While most traders conduct technical and fundamental analyses themselves, others prefer to use other’s analyses.
Copy trading is usually known as a social media, because this feature allows traders to share ideas and information and also learn from each other.
How does copy trading work?
Copy trading works through creating connections within financial markets. This feature allows novice investors to copy their trading strategies from professional traders in the market. In fact, innovative technology and advanced platforms made it easier for copy trading to evolve. You can register in a comprehensive social trading platform and benefit from several useful features.
Some traders may want to use a social trading platform, which offers both copy trading and mirror trading. In a social trading platform, a social trader is able to copy a specific trader’s tradings. Trades are broadcasted through these kinds of platforms, allowing others to copy them. Therefore, if trader A trades something, trader B is able to copy that trade automatically.
Experienced traders who share their strategies will both receive reward and improve their ranking in the platform. Social platforms usually rank traders based on their performance and popularity.
In addition, traders can benefit from the fundamentals of copy trading, but also use several signals and technical indicators to control their positions manually. By studying the sentiments of the market and other traders’ activities, copy trading can be used as a confirmation for your own analyses.
Copy trading attracted interest for the first time at the beginning of 21st century. At that time, traders used the strategies of successful traders. Since then, retail investors have used copy trading for their investment purposes. Each person, whether experienced or totally inexperienced, is allowed to benefit from this system. Therefore, copy trading has attracted the attention of many investors in stocks, commodity and indices markets.
What you should know about copy trading
Copy trading can’t be useful for everyone. Although this system has omitted so many obstacles on the way, it has been criticized for undervaluing the trading knowledge.
One of the biggest mistakes a social trader could make is to think that there are no risks in this kind of trading. Each kind of trader faces risk, and traders can suffer loss in any point in their trading carrier. Therefore, trusting a third party in your trading, while risk stands still, is one of copy trading’s drawbacks.
Participation in financial markets needs patience and knowledge. Although copy trading helps you to overcome some of the difficulties, experience is needed to be successful in this path. It is important that you know what you are doing and use money management in your trading.
When you start copy trading, you are in fact following another trader’s trading plan, but a trading plan must be specific to you and adjusted according to your personal goals. Although using other’s strategies could help you achieve your goals, this plan is in accordance with their own goals and ambitions. Each trader has his/her own risk appetite and the starting capital of different traders is different. Therefore, always keep in mind that copying another trader’s trades can not guarantee success.
How to start copy trading
The main benefit of copy trading is being a member of a community which is constantly sharing ideas, buy and sell signals and also being able to know the market sentiments at a specific moment. We will briefly describe each item below.
Trading signals allow you to use other’s buy and sell signals. This information reduces the amount of analysis you need to conduct yourself. But as mentioned before, there is no guarantee that you will succeed.
Although signals provide a lot of vital information about the market, you can decide whether to trade based on them or not. This means that you are the only decision maker for your own trading portfolio, and you can alter your strategy based on your goals and ambitions.
One common way to find the trend of the market is to use market sentiments. Market sentiments is in fact an indicator of traders’ behavior in the market. This tool can come in handy when predicting future movements of the market.
Measuring market sentiments could be difficult, because numerous factors affect the way traders look at the market. But there are several methods, which we could use to measure market sentiments. These tools are described below:
- The commitment of traders: The commitment of traders is released each Friday by the Commodity Futures Trading Commission (CFTC). This information can help us realize which positions other traders have taken and what is the overall condition of the market.
- The volatility index: The volatility index (VIX) measures the price of S&P 500 in the market and calculates its fluctuations. Instead of suggesting one direction for the market, the volatility index measures fear in the market. The higher the calculated volatility, the higher the fear during the current trend. While lower volatility indicates stability.
- High/low sentiment ratio: This indicator compares the stocks at their highest during the past 52 weeks with those at their lowest during the same time span. If the average trend is downward, the market is more willing to drop and if the average trend is upward, the market is more willing to rise.
Introducing a social trading platform
ZuluTrade social trading platform is focused on forex market. You can join ZuluTrade and monitor trades for free. In addition, you can create a demo account and practice your strategies before risking real money.
ZuluTrade has a visual website and its features can be used easily. You can monitor market sentiments according to ZuluTrade users. You can also enter as an investor and start copy trading automatically, using the trading information of world class experienced traders.
Written by: Mohsen Mohseni (Aron Groups).