What Are The Benefits Of Copy Trading

 If you are new to trading but want to start without getting into all the nitty-gritty details of looking for tutorials or continuously monitoring the market, then you can try out copy trading. This way, you can get started with online trading without much help. Although it used to only be available to institutional investors in the past, now copy trading is available for all retail traders. In fact, this approach continues to gain momentum, with more people looking into this type of trading method. That being said, before you jump right into trading with real money, you should understand what this trading method entails, and how it can exactly benefit you. Be sure to read on to have a better understanding of this topic.

What is copy trading?

So, what exactly is copy trading? It is as its name suggests – it involves choosing a particular trader (or traders) to follow, and then copying what they do. For example, say a trader you have chosen to follow buys 300 shares of a certain stock. If you were using this method, you would follow what they are doing. If they then assign 2% of their portfolio to a certain stock sector, you would do so too. Therefore, this means it is exceptionally important that you choose a trader whose trading style and goals closely match yours. For instance, if you are someone who is slightly more risk-averse and prefers to trade more conservatively, you might want to copy someone who hedges against risk. On the other hand, if you are looking to spread and diversify your investments, you should copy someone who focuses on trading a variety of financial instruments such as commodities, forex, or hedge funds. If you are looking to match the market rather than beat it, it is best that you pick a trader who uses an index strategy instead.

The benefits of copy trading:

There is no doubt that copy trading brings a lot of benefits to traders, especially those that are new to the scene. The most important thing about copy trading is that it allows you to invest and trade automatically – especially if you are using a copy trading platform – without direct knowledge of how the market operates. Here are a few other benefits copy trading brings, and why people might choose to use this method when trading:

You do not need much knowledge

When you copy trade, you are basing all your trades and actions on another person’s actions. Therefore, this means that you can trade with limited knowledge, as the copy trading platform will automatically trade on your behalf. This is great for beginners who may not fully understand how the market works or how to trade but want to dip their toes in and try anyways. Copy trading is also fantastic because most people may not have time to continuously monitor how the markets are doing. Instead, they can just follow and copy the actions of experienced traders to find new opportunities in the market. However, it is still important that traders implement a solid risk management strategy, and at least do a little bit of research just in case before they dive right into copy trading.

Learn how professional traders operate

If you choose to use copy trading platforms to enact your trades, it is also a great opportunity to get to learn new trading strategies. This is because copy trading gives you a chance to observe and shadow more experienced and professional traders. As a result, the longer you do this, the more you can learn from them. This educational experience can prove valuable in the long term, especially for those who are either new to trading or the industry. Additionally, although some traders prefer anonymity whilst trading, others are quite famous online. This means they are likely to build a community of like-minded individuals all seeking similar goals. As such, you can be part of their community and exchange ideas and strategies with each other.

Time-saving

There is no surprise that copy trading can help save time when it comes to trading. If you are using a copy trading platform, this is due to the platform automating any trading processes. All you need to do is pick a signal provider or trader to copy from. Then, the rest is left up to the copy trading platform. Depending on the platform that you choose to use, you can also set additional parameters and criteria when it comes to trading. This can save you a lot of time as you no longer have to manually input any information when it comes to trading online. Another thing is that you also do not have to spend time monitoring the markets or coming up with any trading strategies anymore because you are relying on another trader to do it for you. Therefore, copy trading is a great method for those who are extremely busy and have no time in looking at charts and identifying trading opportunities to take advantage of.

Manage risk effectively

While copy trading does not make trading any less risky than it actually is, traders can still adjust the program to cater to their various risk parameters. This means it is easier for them to trade within their funds, or to not make as many risky trades. For example, a trader can set a maximum drawback level just in case the market goes south. They can also choose to adjust the size of the trade relative to how large their account is, again, as a way to protect themselves when copy trading.

Removes emotion

Because you are completely relying on another trader’s strategies and the copy trading platform to automate your trades, copy trading truly takes the emotion out of trading. This can be a good thing, as you no longer have any stress when it comes to making trading decisions. This may be helpful to new investors who may initially find the shifting markets volatile and overwhelming. Instead of them worrying every day about market fluctuations or if an asset’s price is going to fall, they can simply check how their trades are doing at the end of the week or month. Then, if things are not going well, they can simply pivot to another person’s strategy rather than coming up with one on the spot. Due to copy trading’s passive approach, there is less chance that a trader will panic, or engage in revenge trading if they see their portfolio is not doing as well as they thought.