New to online trading? This strategy lets you effortlessly invest by copying the best
Copy trading can be a win for beginners as it lets you leverage the experience of professional traders for your own personal gain, says AvaTrade
Are you keen to get into online trading, but aren't sure where to start?
Between CFDs, stocks, forex, crypto, indices, commodities, bonds and ETFs, deciding which financial instruments to trade online can feel daunting for beginners, especially if you have limited knowledge of the markets.
The good news is there's a way you can speed up the learning curve and leverage the experience of professional traders for your own personal gain from the get-go. How? Through copy trading.
What is copy trading?
Copy trading, also known as mirror trading, is a trading strategy that involves copying other successful traders’ trades.
When you engage in copy trading, you choose a trader to follow, and their trades are automatically copied into your trading account in proportion to your budget. So, when they buy, your account buys. When they sell, your account sells.
This strategy can be a good option for those who want to learn and benefit from the experience of expert traders, or who don’t have the time or knowledge to do all the research and analysis involved in online trading for themselves.
Is copy trading lucrative?
Copy trading can be just as lucrative as any other form of online trading. However, it's a more effortless way to invest as you are simply copying someone else’s expert trades. It can therefore be a great way to get a passive income with minimal effort from the comfort of your home; it can also be a brilliant side hustle investment.
But it’s important to remember that copy trading carries risks like any other form of trading. Ample research and using risk management techniques to minimise your risk is essential.
How to start copy trading
There are a few ways to start copy trading.
Some brokers offer copy trading platforms that allow you to search for and select traders to follow. This includes AvaTrade, a regulated broker established in 2006, which has 400,000 registered traders around the globe.
You can also pick up tips from social trading platforms and online communities, where traders share their strategies and information about their performance.
Tried and tested strategies for copy trading:
- Research the trader you want to copy: Before you start copying a trader, you must do your due diligence. Look for traders with a long track record of consistent profits and low drawdowns.
- Set clear risk management rules: This includes setting stop-loss orders and limiting your exposure to any one trade.
- Diversify your portfolio: To reduce risk, consider copying trades from multiple traders rather than just one. This will help diversify your portfolio and reduce your exposure to any single trader’s poor performance.
- Monitor your transactions regularly: This is important to ensure that the trades you are copying are still performing well. If you notice that a trader’s performance has started to decline, you may want to consider stopping the copy trade.
- Use risk management tools: Many copy trading platforms offer risk management tools that can help you to manage your risk and maximise your returns. These tools can include features such as stop-loss orders, leverage limits and position sizing.
This article was paid for by AvaTrade.
AvaTrade, trading as Ava Capital Markets Pty Ltd in SA, is regulated by the South African Financial Sector Conduct Authority (FSCA No: 45984).