What is Copy Trading and How Does it Work | Skilling
What is Copy Trading?
Copy trading, sometimes known as social trading, is when an investor’s trade is copied by another. Within a copy trading network, traders can broadcast their strategies for others to complete the same trades.
Just like with regular trading, copy trading looks to invest in various financial markets, and includes contract for difference (CFD), trading on forex (FX), stocks, commodities, indices and cryptocurrencies - opening and closing a position on these assets once the value has increased or decreased.
A “follower” should research the “Strategy Provider” and their track record of investments, and ensure that the leverage is similar, and that the results and trading style is suitable.
Copy Trading with Skilling
Skilling offers Copy Trading via a software called cCopy. This is a web-based system integrated with the Skilling cTrader platform, which means you will have to access Skilling cTrader if you want to engage in Copy Trading.
cCopy is designed based on an “equity to equity” approach. This means, that if a Strategy Provider has $10,000 in his account, and the Investor (Follower) only $1,000 in his account, the Investor’s (Follower’s) positions will be 1/10 as big as those of the Strategy Provider, to ensure similar return on investment in percentage terms.
Benefits for Strategy Providers
- Put your strategy center stage in front of an audience that’s ready to invest in it
- Setup and broadcast your strategy immediately
- Choose the commissions charged
- Receive your earned commissions daily
Benefits for Investors
- Copy the strategies of experienced traders
- Start and stop your investment as you please
- Employ risk management tools to mitigate risk
- Full transparency - view performance statistics help you choose the right strategy.
How does it work?
Investors allocate funds to connect to a trading strategy directly from the cCopy platform. Once funds are allocated, a Copy Trading Account is automatically created, which is a separate account under your Skilling account This account is used for copying the chosen strategy. As the Strategy Provider places trades, these are automatically copied using an equity-to-equity model.
The History of Copy Trading
Copy trading began in 2005, where it evolved from the mirror trading taking place between investors in the financial markets. Traders were copying the strategies that were created by algorithms through automated trading. The developers of these algorithms shared the insights to their investments, allowing others to mirror their trading history.
As this developed, it began to form a social trading network. Eventually, investors began to copy the trading methods of other investors, as well as copying the exact trade itself rather than just the strategy.
Copy trading became so popular that specific sites were created just for this network, offering the opportunity to trade in the stock or forex market for the first time, for example; to invest in a different, unknown market; or even to trial the copying of other traders with a demo account.
What Are the Benefits of Copy Trading?
As a novice trader, copy trading allows you to explore and understand the financial markets, and learn when and where to buy and sell. It provides access to the expertise of more knowledgeable traders, and the possibility to consider potential opportunities otherwise overlooked – although it is advised to still research the market that the copied trade is taking place in.
With copy trading, you are able to trade on various instruments including FX, stocks or indices. There is also a community aspect created, with all levels of traders given the opportunity to share and exchange ideas, strategies and trading education.
For more experienced traders, it can become an additional revenue stream in the form of fees.
What Are the Disadvantages of Copy Trading?
Like with any form of trading, there are still some risks involved when it comes to copy trading. The investment in the strategy of another trader means that the losses they encounter will also incur a loss for those who copied them.
The idea of being able to automatically trade based on the trades of others, can encourage a lack of incentive to research and learn about the different financial markets themselves. Without this research, and consideration of the trader being copied, mistakes and losses may occur.
Although copy trading is beneficial to those new to the financial markets, it is not the only trading strategy available, and as a trader gains more experience it’s recommended to diversify their portfolio by including strategies pertaining to different styles of trading.
What Are the Next Steps When Copy Trading?
Research into the different financial markets and account types is the next step before approaching copy trading for the first time. To help you do this, take a look at these other recommended guides:
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