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Copy Trading: What is it, and will it be beneficial for you?

Copy trading. It sounds like an easy way to find success in day trading, right? After all, all you need to do is copy the setups and execution of trades done by successful traders.

But as in anything in life that is worth doing, it really isn’t as easy as it sounds.

But don’t worry in this post we give you the full breakdown of copy training including:

  • What copy trading is
  • How to do it
  • The benefits and disadvantages of copy trading
  • The best platforms to use for copy training
  • Tips to be successful

But i’ll be honest, the best way to become a successful trader in the long term really is based on building up your own knowledge in the fundamentals of day trading and financial markets. This way you don’t become dependent on following and copying other traders to be profitable.

And building your own knowledge in skill means that you are far more likely to be a profitable and consistent trader over time. It does take time. And copy trading could be a great way to start learning what a good trade set up and execution looks like.

So let’s get into our discussion about copy trading.

Copying is a Way to Leverage the Knowledge & Experience of Those ‘Better’ than You

In almost every aspect of life, there will be people that perform above the average. This is due to some factors like focus, dedication, and many others. And something common to do is copy their performance in order to copy their success too. Often this works like a charm and will help you in many different ways. That’s why today I’m talking about what is copy trading and the benefits it can have for you.

By now, you must have a list of traders or investors you consider as “good”. Mostly in social media people tend to share their trades, profits, and losses a lot. I bet you have asked yourself, “how do they do it?”. This is when copy trading comes to play, imagine copying trades of your favorite traders and being able to dissect and check everything. To reverse engineer trade and see exactly what did he do and how.

But, before getting started all you need to do is a broker that allows copy trading, there are a bunch out there. If you are in Australia, I recommend you to take a look at etoro review Australia. After that, all you need is to know the basics, let’s start.

What is copy trading?

Copy trading is a method that let retail traders in the financial market copy positions opened by other traders. You just need to decide the amount of money to invest and copy the trade automatically in real-time. When the trader you choose makes a trade, you will open the same position as well.

Copy Trading vs Mirror Trading

This should not be mistaken with mirror trading, which is a procedure that the main goal is to let you copy an exact strategy. Both terms can resemble each other, but they are quite different.

The biggest difference between copy trading and mirror trading is that copy trading’s goal is to automatically copy a position and mirror trading focus on copying an exact strategy.
It’s pretty simple, all you need to do now is read a how to copy trade on etoro (or any other broker) guide to get started.

You can start doing copy trading on your own or using a copy platform. Most of them allow you to select an activity to copy and make trades for you. Positions are opened automatically. As you can see, there are very few things you can do here besides checking if there’s enough money to cover the activities.

Benefits of copy trading

The key here is to choose a pro-trader that matches your trading style and goals and follow him. For example, if you trade futures, and you are a conservative trader, then you’d copy a trader that trades futures and is conservative. This way you can get a lot of valuable insight to apply on your own.

Copy Trading generally is beginner-friendly

You really don’t need too much knowledge when it comes to trade set ups, technical analysis and reading charts to get started. Copy trading allows new traders to execute trades in an almost spoon-fed manner. Since you’ll be copying positions from TOP traders, you’re exposed to a HUGE amount of information.

getting started with copy trading
One of the main benefits of copy trading is that it can be beginner-friendly. You really don’t need too much knowledge when it comes to trade set ups, technical analysis and reading charts to get started.

Time Efficiency

Copy trading saves time and effort that would otherwise be spent on market research, analysis, and trade execution. Investors can benefit from the expertise of professional traders without needing to actively monitor markets or make trading decisions themselves.

Income Potential/Profitability

The main aim with day trading is to be profitable and to make money through day trading. The great thing with copy trading is that you are leveraging the expertise of traders who have already proven to be profitable. So theoretically you should be able to profit also by simply copying their trades.

By copying successful traders and earning profits from their trades, investors can generate returns without actively managing their portfolios.

Learn from Experts

Copy trading serves as a learning opportunity for you to observe and understand various trading strategies, risk management techniques, and market dynamics. By studying the actions and outcomes of successful traders, you can also improve your own trading knowledge and skills over time.

Copy Trading: How to Do it

Copy trading is fairly straightforward to do. The main component really is selecting the right trader you want to copy.

Copy trading is really straightforward for traders: you add your investment amount, select a trader to follow, and then the copy trading platform will replicate all the selected trader’s positions directly into your trading account.

Here is a step-by-step guide to help you get started.

copy trading step-by-step
With copy trading you can research different traders and choose one or more traders whose trading style and risk profile align with your investment goals and risk tolerance.

Select a Copy Trading Platform

Choose a reputable copy trading platform or broker that offers copy trading services. Research different platforms based on factors like reputation, features, fees, available markets, and regulatory compliance.

Open an Account

Sign up for an account with the chosen copy trading platform. This process usually involves providing personal information, verifying your identity, and funding your account with the required initial deposit.

Explore Available Traders or Strategies

Once your account is set up and funded, explore the list of available traders or trading strategies on the platform. These traders are often ranked based on their performance, risk levels, trading styles, and other metrics.

Review Trader Profiles

Click on individual traders to view their profiles. Review their trading history, performance metrics (e.g., profit/loss ratios, win rates), trading strategies, risk management practices, trading instruments, and any other relevant information provided by the platform.

Select a Trader to Copy

After researching different traders, choose one or more traders whose trading style and risk profile align with your investment goals and risk tolerance. Some platforms allow you to allocate a specific amount of funds to each trader you choose to copy.

Set Copying Parameters

Define your copying parameters such as the amount of capital you want to allocate to each trader, risk management settings (e.g., stop-loss levels, maximum drawdown), and other preferences. These parameters can usually be adjusted later based on your evolving strategy or risk tolerance.

Start Copying Trades

Once you’ve set your parameters and confirmed your selections, the copy trading platform will start replicating the selected trader’s trades in your account automatically. This includes opening and closing positions based on the trader’s actions in real-time.

Copy Trading: Risks

Like almost everything in trading and investing, you can’t expect to be profitable without some degree of risk. And copy trading is no different. Here are some of the main risks that come with copy trading.

Market Risk

Copying trades doesn’t eliminate market risk; even with copy trading you will are still exposed to market fluctuations. Market conditions such as volatility, economic events, and geopolitical factors can significantly impact the performance of copied trades.

Dependency Risk

Over-reliance on a single trader or strategy can be risky if the trader’s performance changes. Traders may alter their strategies, face losses, or experience periods of underperformance, which can directly affect the outcomes for traders who are copying their trades.

The best way to avoid ‘dependency risk’ is to become good at trading yourself with hard work, practice and study. And I believe the best way to develop your own profitable system is to simplify day trading strategy, technical analysis and indicators in order to become more consistent as a trader and profitable too over time.


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Platform and Technology Risks

Technical issues or platform failures can impact trade execution. Copy trading platforms rely on technology to execute trades automatically. Any downtime, glitches, or connectivity issues can disrupt the copying process and potentially lead to missed opportunities or errors in trade execution.

Regulatory Risks

There are regulatory considerations and restrictions related to copy trading that investors should be aware of. These may include limitations on leverage, investor protection measures, disclosure requirements for traders, and compliance with financial regulations in different jurisdictions.

It’s important for investors to understand the regulatory landscape and choose platforms and traders that operate within legal and transparent frameworks.

Tips for Copy Trading

Now that you know what copy trading is, how to get started, some of the benefits as well as risks, let’s discuss some tips to help you become successful if you do decide to try copy trading.

Diversify: Spread investments across multiple traders or strategies to reduce risk

Diversification is key to managing risk in copy trading. Instead of relying solely on one trader or strategy, consider spreading your investments across multiple traders with different trading styles, timeframes, and asset classes. This diversification can help cushion against potential losses from individual trades or market movements.

Always Do Your Research and Due Diligence: Understand the trader’s track record, strategy, risk management approach, and market conditions.

Before copying a trader, make sure you conduct thorough research and due diligence. Review the trader’s track record, including past performance, consistency, and risk-adjusted returns. Understand the trader’s trading strategy, risk management techniques, preferred assets, and how they react to different market conditions.

Consider factors such as drawdowns, win rates, and trading frequency to assess compatibility with your investment goals and risk tolerance.

research a lot before you begin copy trading
Before copying a trader, conduct thorough research and due diligence. Review the trader’s track record, including past performance, consistency, and risk-adjusted returns.

Monitor Regularly: Keep an eye on performance and adjust your copy trading settings as needed.

Stay actively engaged in monitoring the performance of the traders you’re copying and your overall copy trading portfolio. Regularly review performance metrics, trade history, and any updates or communications from the traders.

Be alert to changes in market conditions that may impact trading strategies. Based on your observations and analysis, consider adjusting your copying parameters, such as allocation amounts, risk settings, or adding/removing traders to optimize your portfolio.

Set Risk Parameters: Use risk management tools provided by the platform to control exposure and protect your capital.

Utilize the risk management tools offered by the copy trading platform to mitigate potential risks. Set stop-loss orders or risk limits to automatically exit trades if they reach predefined loss levels. Consider setting a maximum drawdown limit for each trader to cap potential losses.

Adjust leverage and position sizes according to your risk appetite and account size. By setting clear risk parameters, you can control exposure, protect your capital, and manage risk effectively in copy trading.

What Platforms to Use for Copy Trading?

So just where are the best places to set up an account and start copy trading? Have a look at the platforms below. Try them and test them out and see which ones you like.

eToro: eToro is known for its social trading features. On this platform you can copy trades of successful traders and it offers a wide range of assets, and provides a user-friendly interface.

ZuluTrade: ZuluTrade is a platform that enables users to follow and copy trades from experienced forex traders, providing transparency through performance metrics and advanced risk management tools.

CopyTrader (by RoboForex): CopyTrader is a copy trading platform offered by RoboForex, allowing users to copy trades of professional traders across various asset classes and access risk management features.

TradeStation: This platform offers copy trading features through its TradeStation Copy Trading service. Users can follow and replicate trades from professional traders, access real-time performance data, and customize their copying preferences based on risk tolerance and investment objectives.

SignalStart: This is a copy trading platform that connects traders with subscribers who wish to copy their trades. Traders on SignalStart provide signals that subscribers can follow, and trades are executed automatically in subscribers’ accounts based on signal providers’ actions.