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Copy trading is as safe as the decisions that you choose to make when deciding where to invest your cash.
As with the traditional DIY approach to trading, there are of course risks involved. There are never any guarantees that your investments will make a profit, but as long as you take the right approach to deciding which trader(s) to follow and which platforms to use, copy trading is a legitimate, safe and potentially very profitable way to boost your finances.
Your Decisions Matter
Copy traders should be aware of the impact their actions can have on the potential profitability of their investment, and the most important decision of all comes down to your choice of investor and the platforms that you use. This is what I’m going to try and help you with today.
Choose Your Trader Wisely
Copy trading means that anyone with even minimal knowledge of financial markets can access trading opportunities. By choosing to invest in the strategy of an experienced trader, you can make progress without the steep learning curve and years of research required to understand the ins and outs of the technical and fundamental analysis of the markets that you’re trading in.
You must remember that while you share the investors’ rewards, you also share their losses, so the decision you make when it comes to choosing your trader is critical to get right.
Via Trade Wise, I aim to test and review copy trading platforms and related services in order to be able to recommend the most profitable and useful tools for investors like you to use. This means that even beginners can start copy trading, safe in the knowledge that the resources you’re using have been put to the test and honestly reviewed.
Read on for my tips on how you can enter the world of copy trading safety, including choosing the right platforms for trading.
What Is Copy Trading?
First things first, let’s recap what copy trading is. When copy trading, you are essentially choosing an investor that has a similar investment strategy to yours and buying into their experience as a trader.
All you need to do is to make sure you have cash in your trading account, start following your chosen trader, and install trading software. From here, your trades automatically mirror theirs and you will pay them an agreed percentage of any profitable trades whilst earning a passive income.
This differs from regular trading in that it’s an investment route that allows you to make trades based on another person’s experience and expertise, rather than relying on your own market analysis. This can prove a big draw for those short on time or those that don’t want to have to follow every market rise and fall in order to make money from investing.
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What Should I Be Aware Of?
- You can still lose money
- Even experienced traders make mistakes
- Spread risk by having a following a diverse range of traders
- Set your own strategy
You will lose money
When trading you must always understand the risks involved and be prepared to lose money along the way. Leverage, not setting a stop loss or take profit order, getting carried away with market rise and falls can all lead to costly mistakes.
Experienced Traders Can Make Mistakes
Even though when you’re copy trading, you are generally not responsible for making these moves yourself, you have to remember that even the most experienced of traders are not immune to making mistakes and suffering loss.
With this in mind, always keep an eye on your trading account and don’t be afraid to withdraw your investment if you lose confidence in the trader you’re following.
By choosing to follow multiple traders that each specialise in different investment types, such as forex and stocks, you will build a diverse investment portfolio and minimise your risk of loss by using multiple trader’s strategies and tactics.
Know Your Strategy
Although no technical trading knowledge is required, it is important that you have a clear strategy to determine how you will allocate your funds, and know your attitude to risk. These things are a strong basis to use when selecting the trader you want to follow. For example, if you have a low appetite for risk, don’t follow a trader that regularly takes high risk trades.
Choosing A Platform
Your choice of trading platform will depend on the level of involvement you want when making copy trades. Do you want to choose a trader to follow, sit back and let the bots do the rest? Or would you prefer to manually check trade signals sent before making the trades and managing them yourself?
Whichever route you take, there are plenty of trading platforms to choose from, but not all of them are worth your time and money.
I hope this article has given you a simple overview of the steps you can take to ensure that copy trading remains a safe and enjoyable way to invest.
- Copy trading is absolutely safe, provided you do your research and are aware of the potential risks involved
- Be aware that you share profits, but also loses with your chosen trader
- Use established, reliable and recommended trading platforms like my top 3 picks including Yieldnodes, Protecting Wealth and Gorilla Trades.
- Choose the trader(s) you follow carefully and ensure their trading strategy aligns with yours
- Follow multiple traders to build a diverse portfolio that can help to reduce the risk of following only one investor.
- If you are unsure of the risks involved, you should seek independent financial advice
Ultimately, copy trading is very safe as long as you make sound decisions surrounding risk management, diversification, the trading platforms to use, and of course, have patience and realistic expectations.
If you’re in any doubt about copy trading, I would recommend setting up a demo account so that you can start selecting traders and follow their progress. This is a great way to see how their trade decisions turn out without risking any real capital.
If you’re looking for regular updates on what major copy trading platforms are doing, what works well and what doesn’t work so well, then please do subscribe to my mailing list. I keep my subscribers up to date on everything copy trading, EAs and bots as my personal experience of using the platforms I invest in evolves.
I am Jon Platts and via Trade Wise, I hope that by sharing my experience and reviews with investors like you that you can easily find trusted platforms where high returns can be achieved without making the same costly mistakes that I did when starting out!