The development of social media has also had an impact on trading in the financial markets. The growing popularity of social trading allows those whose knowledge of the markets is minimal to make money. Traders share the nuances of their strategies on trading social networks, write comments, and even provide access to information about their trades online (for a commission on profits or a monthly fee).
The main mechanisms of implementation of social trading are mirror trading and copy-trading. Copy-trading gives you more control over your trades, as you may select not only the traders whose trades you will copy but also the types of deals. In contrast, mirror trading implies opening trades on all incoming trading signals, and therefore a much larger deposit.
In this article, we will discuss copy-trading as more accessible and convenient at the initial stage of social trading.
What is copy trading?
Copy-trading is a method of trading on financial markets that enables you to automatically copy trades of other traders to your account.
How to start using copy trading?
In some cases, you just download and install the software provided by your signal provider, add traders you like to your portfolio, set up copying options and start copying.
But most of the copying services already go to the web version. I.e. you need to log in to your account, choose traders you want to copy, and their trades will be copied automatically.
Advantages of copy trading
- Low initial requirements in terms of knowledge, experience, and start-up capital. Because copy trading is automated, it takes up very little time: you can trade and study the basics of the market simultaneously, and you can communicate with the trader whose signals you copy.
- Experienced traders can earn extra income by providing information on their trades.
- Full control of trades. You can choose the amount and quantity of trades, direct or backward copying, and time ranges for copying as well as switch off copying at any stage and bring trades to close by yourself.
- Possibility to copy deals of several traders at the same time. It allows for diversifying risks.
Disadvantages of copy-trading
- The trader whose signals you use can make a mistake. Since experienced successful traders usually have a large trading deposit at their disposal, several losing trades are not critical for them. For a beginner trader, two or three losing trades can mean a loss of the entire deposit.
- If you plan to trade on your own, you will have to give up copy-trading – at least do not deal only with this type of trading. A beginner will not be able to learn the peculiarities of trading by practicing just copying someone else’s trades automatically. And for an experienced trader lack of need to constantly analyze markets leads to professional degradation.
- Some Forex Copy Trading platforms in South Africa must be on all the time the market is running (usually 24/5). That means your computer must be on and trading software running the whole time.
Withdrawals and Taxes
Withdrawals and taxes are in most cases handled by the broker, which depends on the tax law in your country. Normally, payment for the services of a signal-providing company is included in the broker’s commission.
Copy-trading is a great solution both for novice traders and for those who simply do not have enough time for active trading. It’s also an opportunity to have a closer look at the trading strategies of experienced traders and learn some effective tricks from them. And on top of that, you’ll be able to talk to traders and it will have a great effect on your understanding of the markets. We recommend and welcome this method.