What is copy trading and why should you care?

Copy trading

Most modern stock and Forex trading platforms give you the possibility of using copy trading.

Just as the name implies, this is a tool that allows you to copy trading positions opened by another trader.

You can also directly connect the portfolio with a trader’s portfolio. As the connection is made, all current market positions are copied, together with future actions. After establishing this connection, you are normally allowed to manually make modifications, if this is something that you want.

The Popularity Of Copy Trading

Copy trading is highly popular nowadays and we expect its popularity to keep going up. This is because the beginner traders have access to the knowledge of the very experienced traders. The appearance of this action led to the term “people-based portfolio” to appear, which is practically the fact that you invest in other people that make trades as opposed to investing in Forex or stocks.

Copy Trading Basics

At its core, copy trading is very simple. However, how it is conducted can vary a lot from one platform to the next. The basic principle is that you invest your portfolio or a part of it into the trades handled by another trader. Usually, you determine this based on percentage.

In order to increase trading security and force diversification, many platforms that offer such a service limit how much you are allowed to invest in one trader to an amount like 20%. This is definitely a great policy since it allows you to find different traders and keep looking. Eventually, you might find someone a lot better than what you use now simply because you are forced to keep looking.

You Invest In People

Copy trading is all about looking at statistics and graphs. However, you do not look at graphs that show you how an asset evolved. You look at stats about how the trades of an individual evolved in the past X months. Make sure that you look at the portfolio of the traders before you copy anything. Analyze the strategy, see if the traders were successful, and pay close attention to the used risk management strategies employed.

The Reliability Of Copy Trading

This is where things get truly interesting. Countless studies were carried out as companies tried to figure out how successful those that copy trades are. The results show us that those that use copy trading actually make 10% more money than those that manually trade. The percentage is even higher when looking at beginners because of the lower knowledge level.


Copy trading is particularly good for beginners but it can also be incredibly effective for experienced traders. There is no reason why you should not consider it. Keep in mind that even the professionals sometimes use copy trading when they want to diversify or reduce the risk that they are exposed to. However, this does not mean that you have to blindly trust copy trading. Always learn all that you can and focus on your knowledge so that you can become better and better at making smart investment choices.