Copy Trading Strategy: How to Maximise Returns by Mirroring Trades

1. What Is Copy Trading?
2. How Copy Trading Works
3. Benefits of Copy Trading
4. Risks and Considerations
5. Choosing the Right Copy Trading Platform
6. Top Copy Trading Strategies for Maximum Returns
7. Case Studies and Real-World Examples
8. Copy Trading in Forex vs. Other Markets
9. Tips for Beginners in Copy Trading
10. Limitations of Copy Trading

Introduction

What is copy trading, and how can beginners benefit from it? Mirroring Trades or Copy Trading is an investment strategy where a trader “copies” or “mirrors” the trades of another trader who is a more experienced and acclaimed trader. This strategy appeals to newcomers and beginner investors looking to get exposure in the market and play their hands safely to minimise loss. This technique allows them to gain valuable insights into how seasoned investors trade and leverage the market to their benefit. 

As more retail investors enter the markets, a rise in the use of copy trading strategy can be seen in the forex and stock markets. This can be because traditional self-directed trading is time-consuming and has a higher chance of gaining losses for new traders and investors. In contrast, stock or forex copy trading requires minimal effort from the trader, making copy trading easier and time-efficient for beginners than traditional investing. 

Furthermore, copy trading platforms offer many useful metrics, insights, and tools that enable traders to align their investment goals and risk tolerance with experienced and successful traders. This investment strategy, therefore, offers a unique automated approach to traditional independent investing and exclusively managed funds, ultimately providing traders with control and transparency.

How Copy Trading Works

Now that you know what copy trading is, let us look into how it works. Copy trading is mostly done through a dedicated platform, brokers, or various trading apps that have incorporated copy trading features. There are three main steps to getting started with copy trading:

1. Account Setup

The first step is to set up your account on a trading platform that enables copy trading, such as MetaTrader 4 (MT4) copy trading platform. Most platforms make account setup easy and take only a few clicks. You will need to provide your personal identification and banking details.

Make sure that the details you provide are 100% accurate. Such platforms offer 2-factor authentication for safety purposes, and we highly recommend that you enable it for your own safety.

2. Selecting a Trader

After setting up your account on the platform, you can now access a selection of experienced trader profiles. You will be able to see their preferred trader assets (e.g., forex, stocks, or futures), past returns, performance metrics, and risk levels. Knowing who you are mirroring is very important before you mirror a trader’s trade, including their past record and goals.

This will help you minimise your risk and make an informed decision according to your own goals. One important thing to look for while selecting a trader is not to blindly believe what their description claims; judge their competency by their previous trades and risk management. 

3. Trade Mirroring

Now that your account is set up and you have selected a trader, it is time to mirror a trade. On the platform of your choice, you will have the feature of mirroring a trade of a chosen trader.

When selected, every buy, sell, and stop-loss your chosen trader executes will automatically be mirrored in your account. You can adjust your account to align it with the investor’s capital and risk tolerance. After that, all the investments will be automated and mirrored. 

Once you select a good copy-trading app or broker, these copy-trading steps are easy to follow. Interestingly enough, copy trading is not limited to one market but can be implemented across various asset classes, including forex, stocks, and futures. Investors, therefore, have a chance to diversify their portfolios and mirror traders from different backgrounds and expertise.

Benefits of Copy Trading

Copy trading is an exciting strategy with many benefits. Because of its ease of use, accessibility, and learning opportunities, it is appealing to both beginners and experienced investors. Here, we describe its benefits in more detail:

Ease of Use

Copy trading platforms are designed for beginner-friendly trading. They give traders access to straightforward information about the assets, trades, traders, and their backgrounds.

This helps the investor start the trade without having to study the market before jumping in. Through the copy-trading strategy, they can jump into a trade by mirroring an experienced trader and instantly take advantage of the market.

Accessibility for Beginners

Traditionally, investors take time to learn the ways of the market, what works well for them, and what their goals are. However, beginners can access these trader insights and performance metrics through a copy trading platform or app and bypass the beginner stage of investing.

This will not only help them get started in investing easily but also help them make passive income without giving much time and deliberation to the trades.

Opportunity to Learn From Experienced Traders

This is by far the most beneficial advantage of the copy-trading strategy. Copy trading allows beginners and young investors to learn and observe the art of investing from experienced traders who have been in the market for a long time and have seen many ups and downs.

Therefore, beginners can gain valuable insights into market timing, asset management, and risk management from experienced traders in real-time. Learning to invest through a hands-on approach while minimising risk will gradually help beginner traders develop their own profitable strategies.

Risks and Considerations

While copy trading has a few very beneficial advantages and is therefore appealing to new and beginning investors, a few risks and considerations are involved. Understanding these copy trading risks will help mitigate any risks and polish beginners’ skills.

Trader Reliability 

Selecting a trader to mirror is one of the biggest challenges in copy trading. This is because the effectiveness of your mirrored trade will depend on that trader’s experience in the field, trading strategy, risk tolerance, and past performance.

There is no guarantee that all trades started by an experienced trader will be profitable, and there is no guarantee that trades started by less experienced traders will result in a loss. Therefore, it is very important that when you select a trader and start copy trading, you start with less capital and do not blindly follow an experienced trader’s path.

High Leverage

Most copy trading platforms allow high leverage, which means raising the stakes so that even small market fluctuations can lead to significant financial changes in the form of profit or loss.

To manage risk associated with leverage, new investors should mirror traders who adjust the level of capital allocated to higher-leverage trades or implement conservative leverage strategies, ultimately mitigating leverage risks.

Sudden Market Volatility

Sudden changes in markets, such as forex or futures, cannot be anticipated and can lead to considerable loss. Mirroring traders in such volatile markets can expose beginner traders to additional risk, especially when the whole copy trading process is left to automation.

Therefore, it is recommended that the traders diversify their portfolios by mirroring multiple traders who work across multiple asset classes to minimise the risk of loss due to sudden market shocks. 

These are the most common drawbacks of copy trading strategies that investors face. Before investing through mirror trading, ensure you are aware of its risks and consequent mitigating techniques. This will help you polish your trades and overcome losses.

Choosing the Right Copy Trading Platform

Choosing the right copy trading platform is critical to ensuring a good trading experience and related outcomes. In the market, many different platforms, apps, and brokers offer copy trading strategy as a feature, but which one works best for you? Here are a few ways that you can find that out:

User Interface

A platform’s user interface is of utmost importance, especially for beginners. Select a platform that offers an intuitive and uncomplicated design, clear performance metrics, easy login, and account setup.

The PU Prime platform has been celebrated by customers and industry experts alike for copy trading, user-friendly interface and tools tailored to traders of all experience levels. It also ensures robust customer support, making it an excellent choice for those starting their trading journey.

Fees

All platforms or apps charge fees for setting up an account, opening or closing a trade, or taking profits. Therefore, it is important to understand how these fees work and how they can impact your experience in the long run.

PU Prime offers transparent pricing, giving traders clarity on costs and confidence in managing their investments. By understanding the fee structure early on, traders can make informed decisions and focus on building their portfolios.

Range of Tradable Assets

It is highly recommended that you diversify your portfolio by mitigating risk and gaining experience in various markets. Therefore, the best approach is to choose a platform offering a range of tradeable assets.

Customer Support

Strong and accessible customer support is vital, especially for beginners who need support when setting up an account, adding their wallet, making a trade, or looking up trader profiles.

PU Prime not only provides robust customer support but also fosters a community-based support system where traders can interact, share strategies, and learn from one another, enhancing their trading experience.

Top Copy Trading Strategies for Maximum Returns

For maximising copy trading returns, there are a few strategies that you can follow: 

Diversifying Traders

Mirroring various traders instead of just one can significantly decrease the risk of loss. This is because different traders will use different insights and trading strategies spread across different assets and asset classes. In this way, you can avoid being greatly impacted by downturns in any market and guarantee stable returns over time.

Using Risk Management Tools

Almost all platforms offer risk management tools that users can use to minimise their risk. For example, the stop-loss tool will close a trade after it reaches a certain low level, consequently conserving capital. Some platforms also let you allocate a certain percentage of your capital to your copied trader, which further gives you control to mitigate risk. 

Adjusting Strategies Based on Market Conditions

Most of the time, copy traders leave their portfolio on full automation and only occasionally check back. However, it is best to adjust your strategies based on market conditions and traders to maximise your returns. 

These copy-trading tips will be very helpful for beginners to understand the complex world of trading.

Copy Trading in Forex vs. Other Markets

Copy trading works differently in different markets because of the unique characteristics of each market, risk profiles of each asset class, and trading hours. Here, we look at how copy trading works in the forex, stocks, and futures market:

Forex Market

The forex market operates 24/7 and is known for its flexibility and accessibility among traders. Copy traders in the forex market often follow momentum trading, market trends, and world news to capitalise on currency pairs. This also means a good amount of risk is associated with this market as there is high liquidity and leverage in forex. 

Stocks Market

Compared to forex copy trading, stock copy trading is more stable and slow, as traders here rely on long-term investments and dividend yields. The stock markets are also limited to trading hours, which further decreases the exposure to risk.

Futures Market

Copy trading futures is more complex than either of the above-mentioned asset classes because the futures contracts’ structured expirations and their sensitivity to macroeconomic factors come into play. The traders have to showcase a greater understanding of world markets, economics, geopolitical events, and seasonal changes. Compared to forex markets, futures markets are harder for new traders to navigate and understand.

Tips for Beginners in Copy Trading

Copy trading for beginners can be a smooth and rewarding experience if they go in with a strategy. Here is a step-by-step strategy for getting started with copy trading:

Open a Demo Account: 

Before investing any real money, we recommend that beginners start by using a demo account offered by most trading platforms and apps. A demo account is like a dummy account that allows beginners to simulate trades in real time in real market conditions without actually using any funds. This is a great way for beginners to familiarise themselves with the platform itself, trading mechanics, and the role of different metrics in trading. 

Choose a Reliable Broker and Platform: 

This step can make or break your entire copy trading experience and results. Above, we have mentioned a few considerations that a new trader should keep in mind while selecting a trading platform or app. So, before you set up an account, look at platform fees, customer service, and a range of offered asset classes. Most importantly, check if the platform offers copy trading. 

Set Up Your Account: 

After choosing a platform, you will set up a live and funded trading account. Make sure that you give accurate information and do not use expired IDs. For an added layer of security, turn on 2-factor authentication if the platform or the app offers it. 

Research and Select Traders to Copy: 

After your account is live and working, take ample time to research the available traders and their portfolios. Most traders have a short summary explaining their ethics and previous experience. Do not solely believe their words; double-check their portfolio statistics. This will help you ensure that their words have meaning and that you are not blindly trusting them with your money. 

Start Small: 

We recommend that you begin with a small investment and allocate only a small percentage of your total funds to copy trading. This will help minimise significant risk while giving you time to observe and learn from the trades you’re copying. With time and as you become more confident and experienced with trading, you can gradually increase your investment capital and portfolio.

Use Risk Management Tools: 

Remember to use the platform’s risk management tools, such as stop-loss orders and trade metrics. This will help you avoid significant losses in market volatility. 

Monitor and Adjust: 

Although the process of copy trading is fully automated, we recommend that you monitor the trades made with your capital and their performance.

Limitations of Copy Trading

There are a few drawbacks of copy-trading that a beginner trader should know before jumping on the copy-trading bandwagon. 

Less Control Over Trades

The essence of copy trading is “copying” an experienced trader and bearing the same profit and loss as the trader. This means that you will have less control over the trades. So, if your selected trader trades in an asset you are not very fond of personally or whose values do not align with yours, you will still have to abide by the trader’s sentiments and strategies. 

Risk of Blindly Following Other Traders’ Decisions

While copy trading is a beneficial strategy, like any trade in the market, it comes with the risk of loss. In this particular case, the risk of loss is associated with the decisions of the selected traders. You will bear loss or profit at the trader’s mercy and decisions. 

These copy-trading limitations show that the risk of profit and loss in copy-trading is associated with the sentiments and decisions of the copied trader. Although the copying trader has less control over the trades, the risk remains the same, if not more.

Conclusion

Copy trading is a reliable pathway for young and upcoming traders to start investing in and trading stocks, commodities, and forex. This strategy offers new traders an insight into how established traders work and mitigate their losses, what diversifying the portfolio means, and an unmatched opportunity for hands-on experience and education. They also learn the importance of choosing the right trading platform or app and can see real-time events unfold through automated mirroring. 

Ultimately, a copy trading strategy summary involves giving someone else control of your capital. It is a fact that every investment comes with risks. So before copy trading, we suggest that new traders learn to manage risk and prioritise safe and secure trading by diversifying across multiple traders, using risk management tools like stop-losses, and monitoring performance to adapt to changing market conditions. A demo account on a trading platform will help a lot in understanding the complexities of trading and getting started safely.

With proper strategy and research, risk mitigation and management techniques, and a slow and steady but gradual approach, new investors can use this strategy to grow their portfolios and experience securely and effectively.