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What is Copy Trading and How Does it Work?

siliconreview What is Copy Trading and How Does it Work?

Are you looking for a lucrative way to use your financial knowledge or passion for working with money to create an income? Copy trading might just be your answer. The concept is simple: Whenever a trader makes a trade, you copy that trade and your account will perform it in real time.

With copy trading, you benefit from the knowledge and expertise of better traders. You also don’t leave your funds in the hands of another person as you would with most other common investment methods. Instead, you open your own personal trading account and connect it to your chosen trader’s account via a copy trading platform.

Key Components of Copy Trading

Like any form of trading, it all starts on a central market. In the case of copy trading, it was born on the forex market. Since then, many other markets and their components have joined, including indices, stocks, commodities, ETFs and interest rates, among others.

The trader you work with is known as a signal provider. In order to choose the best trader, you observe and evaluate their performance on the copy trading platform. Like in any market, there’s also a broker. You need one in order to receive the operating signals of the trader you’ve chosen to copy. A broker is either independent or part of the platform.

Finding the Right Trader to Copy

Naturally, finding the best traders to copy is key to your success in copy trading. There are certain aspects of a trader that you should look into. For example, the market that they’re working on. Stocks are much less volatile than forex and forex is less volatile than crypto.

Their risk score is another large factor. A lower risk score means your trader is using much more sensible strategies and is likely more experienced. Sure, some traders “get lucky” from the beginning of their career, but this luck doesn’t always last. It takes years of skill to create a desirable level of consistency.

While one of the biggest benefits of copy trading is that you can capitalize on the skills of more experienced traders, you also need to be as knowledgeable and experienced as possible in order to make better decisions. There’s an article by InvestinGoal on investing in knowledge which will help you to see why it’s so important. They also havemultiple investing courses that you can take if you want to develop your skills.

Benefits of Copy Trading

Copy trading takes much less time than manual trading, as you don’t have to spend your days studying charts and reading economic news. You also have the benefit of learning about a wide variety of markets around the world. Copy trading is a safer way to start as well since it reduces much of the risk associated with manual trading.

Conclusion

Once you’ve done some research, found the right platform, and taken some time to consider your final decisions on where you want to start, it’s up to you to decide when to pull the trigger. Perhaps consider playing around a bit with demo accounts first in order to get a grasp of how it works. 

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