Copy trading can be a good solution for anyone who does not have the time, knowledge or skills to trade forex manually by themselves. With there being millions of forex traders across the globe and plenty of copy trading platforms to choose from, there is certainly not a shortage of options for copy trading solutions. That being said, there are some key advantages and disadvantages that you need to consider before you look to copy the traders of someone else.
What is forex copy trading?
In a nutshell, forex copy trading is when you choose a forex trader whose buy and sell trades you want copied into your own trading account. This means that you do not need to spend any time analysing the currency pair charts for yourself as they do all of the hard work. If they make a good trade on their account, it will be duplicated on your account. If they make a bad trade on their account, this will also be duplicated on your account.
How does copy trading work?
Copy trading is usually down through a forex broker, such as eToro. They provide you with a platform where you can search through various different traders, view statistics and choose who you would like to copy trades from. You can analyse their historical performance and check any profits, loss, drawdowns, profit factor, average win, average loss and other key factors.
Once you have identified a forex trader whose trades you would like to copy, you can follow them and have their activity copied onto your own forex account. You can add or remove forex traders at any time. The larger the copy trading platform, the more choice you will have when it comes to different forex strategies.
Does forex copy trading work?
Yes, forex copy trading can work but you are dependant on the trading sills of someone else. They will be doing all of the leg work in terms of analysing the markets, placing and managing trades. This means that you will need to put a lot of trust into them. Some forex traders are better than others, and with so many copy trading signals to choose from, it can be tough to filter the good from the bad.
If you see a forex trader with good historical results that you wish to copy, make sure you check that they are using a forex strategy which you feel comfortable with. I have seen lots of copy trading signals that use dangerous money management such as martingale strategies and grid trading systems. These can often lead to high drawdowns and even blown trading accounts.
Whilst historical performance is one of the best ways to gauge the quality of copy trading signals, this is by no means any guarantee of what will happen in the future. Every trading system can go through good and bad periods, which can last weeks, months and even years.
Can I make money copy trading?
Yes, it is possible to make money copy trading but I personally do not think that it is the best way. Even if you do find the best copy trading signals, they might not be around forever. Signal providers can come and go, whilst the quality can also drop.
I do not think that anything can beat learning how to trade forex manually by yourself. This way you do not rely on anyone else and won’t be blaming someone if things go wrong. You can instead learn from your own mistakes which can make you a better trader in the long run.
A forex demo account can be a great way to practice your forex strategies and improve your trading skills. Once you have built enough confidence and start seeing some consistent results, then you may consider making the switch to a live account. You can get a free forex demo account from most forex brokers, including IC Markets. From my experience, they have some of the best trading conditions for manual and automated forex trading.
If you are looking for a copy trading solution because you just don’t have enough time to day trade, you could always consider a more longer-term trading strategy for the daily, weekly or monthly charts. This required minimal time and can even be a good way to filter noise out from the lower chart timeframes which so many forex traders are obsessed with.
Is forex copy trading safe?
Yes, if you are using a regulated forex broker than it can be considered safe in terms of broker security. However, the safety of your funds can depend on the trading strategies that you choose to copy. For example, if you copy a trader who is using no stop loss and you lose all of your funds, then don’t be surprised.
You can choose the amount that you wish to use for copy trading which should never be more than you can afford to lose. Also, ensure that you only copy forex traders which are using strategies that fit within your preferred trading style.
Copy trading vs social trading
When we are talking about copy trading and social trading, they are often used interchangeably. Whilst they are similar in terms of you copying trades of others, social trading can involve you having control over the final decision.
If you are using a copy trading platform such as ZuluTrade, you can automatically copy trading signals. On the other hand, social trading platforms such as AvaTrade enable you to get inspiration from other traders but take your own positions in the market.
Copy trading vs forex signals
Forex traders can also get confused between copy trading and forex signals. Copy trading is when trades are automatically copied to your account whereas forex signals ae sent to you and you can decide if you would like to take the position or not.
Whilst forex signals do allow you to maintain more control over your account, they also require you to manually confirm and execute the trade. This requires some time and knowledge of the markets whereas copy trading is a more hands-off solution.
Advantages of copy trading
- Automated trading on your account
- Lots of forex traders to choose from
- Access different forex strategies
- Set your trade size and loss limits
- Follow and unfollow traders at anytime
Disadvantages of copy trading
- Not all traders are reliable
- Lots of bad forex strategies
- No control over the decisions
- Do not improve your own trading skills
- Additional fees for copy trading
Conclusion: is forex copy trading good for me?
Yes, copy trading can be a good option for anyone who does not have the time or skills required to trade currency pairs. However, you will need to at least take time out to setup a copy trading account and carefully choose the trading strategies that fit your own individual goals. Even then, there can be no guarantee on how good or bad the copy trading will go.
I personally think learning how to trade forex by yourself is the best over the long term as you can then be responsible for your own decisions and trade in a way that matches your own personality because everyone is different. I see too many novice traders looking for magical forex signals that simply do not exist and they often feel let down afterwards, wasting both time and money in the process.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.