- Category: Articles
- Published on Sunday, 21 October 2012 20:55
- Written by Super User
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For a few years now there is a new phenomenon in the global investment community which is becoming more and more popular. We are talking about copying the best traders in the world, or: copy trading. What is copy trading? How does it work and where can you do it? These questions and more I will anwser in this article.
Copy trading is actually part of social trading. The last few years social media have become much more important, think Facabook, Twitter, etc. Here from social trading emerged. Social trading is traders who share their experience and thoughts about the market with other traders. A few internet brokers have jumped in on this trend and now facilitate a tradingcommunity which communicates with each other and learns from each other. Copy trading is an interesting byproduct of this.
What is copy trading?
The name says it all: It is about copying the best traders. Nowadays it is posible to copy the rtades of one or more traders, direct and automatically in your own cfd-/ forex-broker account. You can choose which trader you copy and with how much money. The broker supplies the necessary data about the trader. So that you can see what his or her results were over different periodes of time, what his or her biggest loss was, etc.
This way you can always find the trader that suits you most, regarding risk/reward ratio. It is advisable to devide your capital over 4 to 5 traders in order to reduce risk. Your money will always stay in your own account. The broker copies the trades of the traders you follow, direct to your account. If you are not happy with the results of a specific trader, you can at any time stop following him and, if you want to, choose another trader to follow.
Advantages of copy trading
The most obvious advantage of copy trading is of course that you don't have to be a great trader yourself to get great rsults. But there are more advantages and applications. You can also use it lo learn from the trades of the best and most experienced traders. This way you can become a top trader yourself.
But also consider the following use. Every investor knows how impotant diversification in his portfolio is to reduce risk. Traders can ( if they are good) make a profit with markets going up and down. So to put part of your capital in trading is very good for reducing risk. this is also what the big banks and pension funds do when they invest in hedgefunds or have their own traders on their payrol. Copy trading makes this also accessible for relativly small, individual investors.
Which brokers offer copy trading?
The two most important providers of copytrading, with the largest community of top traders, are eToro and Zulutrade. Both are pioneers in this area.
eToro : a Broker from the U.K. regulated by the British FSA. eToro is with 2 million custumers one of the biggest cfd-/forex brokers in the world. And that is with good reason. They maintain a large community of traders of which you can make use of. Amongst other things they offer copy trading. Read more about the service of eToro on their website: click here
Zulutrade : This is a signal provider with a large database of traders that you can follow free of any charge.The trades are being copied to your account automatically. This works with many different cfd-/forex brokers. Read more about the service of Zulutrade on their website: click here