Copy trading is a popular way to limit risks and save time. The scheme is popular with neophytes and experts. Here are a few tips to make it work for you.
Copy Trading Ideas
Today, global financial markets are no longer open to the chosen few. They may be accessed by any individual with a registered trading account. Brokers provide simple registration through the Internet and cutting-edge software for digital trades.
Today, the international community of online traders is estimated to include 15+ million people. Many of them connect to the global currency exchange, where over $6 trillion circulate daily. Well-timed trades of different virtual assets bring profit to major institutions and retail traders.
Like any investment, currency exchange, as well as CFD trading, has its own inherent risks. Fortunately, these may be reduced through portfolio diversification and other means. The method most favored by newbies is copy trading.
What Copy Trading Is All About
The scheme is built around the delegation of finance decisions. Rookies trust reputable experts with a portion of their funds. Known as Strategy Managers, these experienced traders allow you to have their market decisions replicated in your account. For them, the incentive is the fee for profitable transactions. For you, this results in potential gains with no active participation required.
Launching copy trading with FXTM requires a few mandatory steps. First, you should choose a candidate based on specialized ratings compiled by the broker. These rankings are normally based on objective measurements of performance and client feedback.
Once you are certain which Strategy Manager is the best bet, sign up for the service and make sure your balance is adequate. What happens next is entirely automated: all positions currently open by the trader, as well as their subsequent steps are copied into your account. This looks as if the two of you were pursuing identical strategies.
Brokers impose limits on the share of available balance you may use (e.g., 20%). The size of the commission, as well as specific terms and conditions, may also vary. Consider one of the possible scenarios in which your Strategy manager uses $1,000 of your funds to open trades that return $500 in gains. Subsequently, $450 – a lion’s share (90%) – counts as your profit, while the remaining $50 constitutes their fee (10%).
Remember About Risks
Copy-trading should not be perceived as a universal method of risk minimization. It is favored by rookies wishing to avoid expensive mistakes and by seasoned players who are simply pushed for time. However, relying on expert knowledge does not guarantee success. This is something any credible broker will emphasize on.
If you notice your Strategy Manager opens undesirable positions, these may be canceled. Their progress may be easily monitored and managed at any time. Importantly, copied traders are not paid any commission unless their decisions bring profit.
Choose Your Expert Carefully
Take time to study and compare the ratings closely. Choose the candidate most likely to succeed. The more experienced the Strategy manager, the more clients they have assisted, the better the odds. Such scrutiny will pay off in the future.
Diversify Your Assets
Experienced traders know the value of diversification. When you focus on any asset (e.g., currency pairs), your overall profit hinges on the dynamics of this instrument. However, if your portfolio includes a set of different instruments traded simultaneously (e.g., currencies, stocks and CFDs), there is less risk.
If one of your instruments fails to generate returns, you may be able to compensate for the loss with profits from elsewhere. Many clients who begin with Forex trading later expand their portfolios with CFDs on stocks, precious metals, commodities, or cryptocurrencies. Each of these schemes may also allow copy trading.
Diversify Your Traders
If diversification works for financial assets, it is just as useful when applied to Strategy Managers. Delegate trading to several candidates if your brokers allow it. The logic is simple: if one of them falls short of expectations, others may make up for their failure. Meanwhile, you will be able to assess the real-time performance of your chosen experts.
Start Out Small
Finally, test the waters before trusting another trader (in essence, a stranger) with a sizeable chunk of your money. Begin with modest amounts and increase gradually. Remember: risk is always present. Alternatively, delegate to a group of traders giving a reasonable amount to each.