What Is Copy Trading?
Forex is not rocket science, but learning to profit from currency values requires time and intellectual effort. Before engaging in real trading, it’s worth exploring all the educational opportunities the platform can offer. Aside from training with the risk-free demo account, newbies have another valuable option — copy trading. This article reveals the basics of copy trading with FXTM, one of the most prominent UK brokers.
The Basic Principle
The idea of copying trades is based on delegation, and it is also used in the realm of stocks. Rather than analysing currency trends and placing orders by yourself, you trust a finance expert with managing a portion of your money. Subsequently, all the operations they perform are replicated — or copied — into your account. Basically, it looks as if you were making identical decisions.
For a rookie, it is a good opportunity to improve their understanding of Forex trading. Fear of making costly mistakes is a common motivation. Confidence is not gained overnight. However, it is also used by exchange veterans when they are pushed for time.
By connecting traders, the phenomenon has essentially given rise to a social trading network. Since its emergence, it has fundamentally transfigured the realm of currency exchange. Copy trading saves time and effort while ensuring the funds are being managed by a professional.
How It Works
Any client of a reliable broker like FXTM can sign up for the service. This will connect a share of their personal funds with the account of a professional known as strategy manager. The actions taken on the market get replicated based on a pre-set proportion. This includes opened and closed positions, Stop Loss and Take Profit orders.
Once the accounts are linked, you will see the expert’s open trades and future actions copied. The process is automatic, with zero effort required on your part. The arrangement makes a trader’s life easier by helping to invest wisely — essentially, by proxy. Hence, it is not rendered free of charge.
The size of the commission varies from broker to broker. It is often paid as a fixed monthly subscription. In another existing scenario, it constitutes 10% of the profit. From $500 gained by investing $1000 of your funds, $50 goes to the copied trader.
Retain Full Control
Importantly, you still have the freedom to manage the copied trades as you see fit. Even though the scheme involves an experienced currency trader, it should not be perceived as completely risk-free. Therefore, credible brokers allow you to terminate the relationship when necessary.
Start small to test the waters. If the strategy manager’s behaviour is effective, you can increase the portion of funds to the maximum. Since no legal investment is completely risk-free, remember that higher amounts come with higher risks.
This also explains why diversifying makes sense. Connect to several traders and monitor their results closely. If you find some of the trades unacceptable, most platforms will allow you to cancel their replication.
Limitations That Apply
In most cases, certain restrictions are imposed on how much you can invest through a copied trader. For instance, this may be limited to 20% of your total funds. Hence, with $2,000 in your account, you may choose to trust the trader with $200, or 10%, increasing the share later.
What Traders Copy
FXTM monitors the performance of all available experts and ranks them for your convenience. The rating is based on several performance indicators, including the length of experience, investment return, and more. This way, you can easily see how well a manager has been doing to understand their potential.