The world of trading is an exciting one, full of opportunity and chances to make significant amounts of money. However, for a beginner, it can also be a confusing place. There are many different platforms available, and once a platform is chosen, there are strategies to consider.
One option that many social trading platforms offer is to copy other traders. This allows a trader to replicate the actions of another, using up to a certain amount of their own portfolio. However, this is intended as a tool to help beginners learn, not to make a living. Here are some of different aspects that make up copy trading, and why it may not be the most reliable source of income on its own.
Learning Opportunity
At its heart, it seems like copy trading is a learning opportunity. Copy trading is, in many ways, designed to help an individual learn how to make successful trades. For example, platforms like Darwinex offer their users a chance to follow and copy the actions of established traders, by allowing users to apply search filters like “Top Invested” to find useful profiles. Many platforms offer a way for beginners to communicate with the experts that they are following, allowing them to learn how to trade more effectively.
Risks
Trading is a risky endeavor that can lead to a significant loss of capital. Therefore, many traders start out by copying other traders, giving themselves time to learn. To help make things smoother, it is possible for a person to invest a percentage of their balance in copying another trader’s account. Different platforms arrange this differently, so a person needs to be aware of those figures, especially since some platforms can have hidden costs that you need to be aware of.
By only putting a certain portion of their capital into copying another trader and following a variety of them, a new trader can have a more balanced portfolio. This allows them to see the various ways that others work before they begin their own trading while minimising the risk to their portfolio.
Choose the Right Trader
Many platforms allow a person to copy up to one hundred traders at the same time, while also allowing that beginner to make their own trades. This allows them to learn from each of those traders while still experimenting on their own. However, it is critical to choose the correct trader as there are different styles of trading.
It is also important to remember that a trader is not responsible for their followers, and sometimes, if the trader is very wealthy, they might have a very different idea than some of those followers on what a small loss is. Some traders are willing to talk to their followers and offer insight and advice, while others are less likely to do so. Choosing the right traders to follow, therefore, is a critical step in copying.
While a person can make a significant amount of money by copying other traders, it is important to remember that this action is trusting a total stranger with an investment. Copy trading seems to be intended as a way for someone to learn how to be an effective trader, not to become wealthy or even to regularly pay their bills.
