What is copy trading and is it a good fit for you? - Orion Wealth Academy
Trading is a good option to invest money for the future and short-term financial goals. In trading, there is a system that traders use called copy trading. In this article, we’ll explain what copy trading is and discuss whether it is the right strategy to help you diversify your money.
What is copy trading

What is copy trading?

Copy trading allows participants to replicate the trades placed by other traders, often expert and pro traders in real-time. The idea is to find a trader with a proven track record and begin copying their trades.
 
When talking about copy trading, you should know there are typically three (3) parties involved:
  1. Signal Provider: Trader whose trading activities are being copied.
  2. Copier: This individual is the one mirroring (copying) the trades of the signal provider by using their personal trading account.
  3. Broker: The broker facilitates entry to the copy trading platform (such as an application or MetaTrader 4), enabling the signal provider and the copier to connect.

The main reason to copy trade is for you to have the same profits as expert traders. It’s like investing with less room for costly mistakes. Let’s understand the copy-trading process (how it works) before deciding to copy-trade

How does copy trading work?

A straightforward logic: The “Copier” replicates another trader’s trading strategies and activities, the “Signal Provider”. This process is facilitated through a dedicated copy trading platform offered by brokers.
How does copy trading work?

Decode copy trading step-by-step guide

We would showcase the DecodeEX app in this scenario as our app is super user-friendly for traders even if you’re a beginner 🙂
 
  1. Decode offers a copy trading app where copiers follow the signal provider’s trading decisions and activities.
  2. Traders sign up with the brokerage platform and link their accounts to the copy trading app.
  3. In the app, users can track the signals’ trading performance, including monthly returns and profitability, as they trade and establish a track record.
  4. Copiers choose which signals to follow. When connected to a signal, every trade made by the signal is automatically copied into the copiers’ accounts, adjusting for factors like available funds and risk preference.
  5. In return, the signal trader receives a percentage of the copier’s profits.
 
Now, let’s move on to the question of “How”
How to copy trade

How to copy trade?

To start copying someone’s trades, you must first open your own live MT4 trading account. This account is used to follow other traders. Additionally, you have the option to open extra sub-accounts for added flexibility. For instance, one account can be used for manual trading, while another can be used for copying trades.
 
After opening your live MT4 account(s), you link it to your preferred copy trading system. Then, you can view a list of providers whose trades you can copy. By clicking on a trader, you can see their stats, such as past performance, drawdown, and preferred trades.
 
Before confirming that you want to copy a trader, you can adjust the risk settings to match your goals and risk tolerance. This is crucial because traders have different starting points and risk preferences. Copy trading offers flexibility, making it a suitable option for those who lack time or resources to trade independently. Adjusting your settings allows you to stay in control of the amount you risk on each trade, which is a trading risk management move.
 
If you only want to copy trades, you don’t need to intervene manually. Just click ‘copy,’ and your account will automatically start copying the trades of your chosen signal provider. You can then go about your other activities while the system works in the background. However, it’s important to regularly check your account to monitor performance and ensure there’s enough margin available.
 
While copy trading is widely used in the forex market, it’s not limited to currency pairs. Each provider or master trader has their expertise and preferences for trading various assets like forex, stocks, indices, commodities, cryptocurrencies, and more.
Benefits of copy trading

Benefits of copy trading

1. Flexibility

While copy trading involves simply copying the trades of the signal provider, the copier still maintains control of how much risk per trade they are willing to bear. If the provider trades with larger lot sizes than your account can handle, you can adjust the trade size to match your account balance proportionally.

2. Efficiency

Succeeding as a trader takes time, and not everyone can spend hours each day on it. Copy trading lets you trade alongside top traders even when you’re busy with other tasks. Just ensure your risk parameters are set and monitored correctly.

3. Transparency

Copy trading features a leaderboard where you can compare signal providers and their trading performance such as profitability. This makes wins and losses visible for everyone to see.

4. Diversification

Copy trading isn’t just for traders with limited time for trading. It can also be used as a diversification tool. For instance, if you prefer swing trading but see success in short-term trading, you can copy someone who excels in that area. Copy trading could help offset poor performance in your strategy or when trading opportunities are limited.

Challenges of copy trading

Choosing the right signal trader can be challenging. Just like researching before buying a stock or investment fund, you should spend time assessing traders to copy. It’s not always about picking the one with the highest monthly return. Sometimes, we need to consider factors like maximum drawdown and the trader’s trading history.
 
Recognize risk: Copy trading carries risk as losses are mirrored just like wins. Although you can control some risk factors, like how much money you allocate and risk settings, you don’t control the trades of the trader you follow. Market changes or emotional trading by the master trader can affect outcomes. While beyond your control, it’s essential to consider these factors.
 
It’s important to be aware of additional costs associated with copy trading, as some providers may charge a subscription fee for copying their trades. Always check for any fees before initiating trades. Furthermore, copy trading doesn’t shield you from common market risks like slippage, rejected orders, or platform outages. Be prepared to manage these risks alongside the benefits of copy trading.
copy trading terms

Terminology of copy trading

You might encounter some unfamiliar terms in the copy-trading realm. Below, we’ve outlined the common terms you’re likely to come across.
 
Fixed Size: When you are copying an account, fixed size refers to selecting the total trade size yourself, rather than automatically copying the size of the signal’s position.
 
Mirror master size: Replicates the exact size of the signal trade you’re copying. For instance, if the trader you’re copying buys $50 worth of gold, selecting “mirror master size” will also buy you $50 worth of gold. This feature mimics the signal trade size for all trades, regardless of your or the master trader’s account size.
 
Mirror master risk: It aligns your trade size with your account size, ensuring you take the same risk percentage as the signal you’re copying. For instance, buying $5,000 of the CAC40 Index poses different risks for accounts with varying balances.
 
Max drawdown, also known as “Hard Stop,” is the maximum loss observed from a peak to a trough of a portfolio before a new peak is reached. It indicates downside risk over a specified period. Note that it measures only the largest loss and not the frequency of losses. Max drawdown is expressed as a percentage and applies to your entire account, not just a specific signal.
For example, if you set a Max Drawdown of 30%, trading halts when your account’s equity falls by that amount, and all copied trades are closed. You need to adjust your Max Drawdown to resume trading.
 
Warning level: Once your drawdown hits the percentage you set as the “warning level,” the app notifies you.
 
Soft stop level: If drawdown reaches the soft stop level you set, copying stops.
 
Hard stop level: If the hard stop level is reached, all trades close, and copying halts.
Maximum Drawdown
Join thousands of traders at the Orion Trading Community and trade CFDs on forex, indices, commodities, and crypto with our partner platform!
 
Click the link to start copy trading with the best traders on the DecodeEX platform. DecodeEX is a professional financial trading platform where you can follow among the highest profit rate traders through the CopyTrading function.

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