Copy Trading Guide and its Advantages and Disadvantages

Getting inspired by colleagues or an expert trader and beginning with trading cryptocurrency sounds incredible. However, it's not that easy; trading without knowledge is equal to shooting in the foot. The forex market fluctuates a lot, and you can lose a lot of money if you don't have prior experience.

This is where copy-trading comes in, enabling a trader to learn and adapt to the trading environment from an experienced trader. Let’s read further.

What is Copy Trading?

The word 'copy trading' is elementary in its literal meaning, "copying the trades". Copy-trading is the replication of the trading strategies of expert traders on the trading platform.

Trading can be executed in many ways, but copy trading is most suitable for beginners. Individuals cannot directly jump into trading; they first need to understand the fundamentals of how trading works and the factors that move the market.

Getting started with Copy Trading

Getting started with copy-trading requires signing up to the trading platform and depositing the amount you wish to invest.

However, selecting the best copy trading platform can be challenging at times. Therefore, let us move forward with one of the most beginner-friendly copy trading platform, CapitalXtend.

Copy Trading as a Provider

A provider is a pro trader who shares his trading strategies so that others can reap the benefits. One can register as a Provider by clicking on the "Invest Now" tab under MyCapital. After that, you will redirect to a user portal. Click on "Register as a provider" at the bottom left of the portal. This will further redirect you to the Provider registration page. Enter the details like trading account id, password, and Nickname, and then Click on Register. It will redirect you to Provider's Profile, where you can update your Personal information & general details. This is it! You are ready to use Copy trading as a provider. To mention, Copy trading Providers get benefits when their trade ideas are being used by followers.

Copy Trading as a Follower

A Follower is a trader or investor who copies the trading strategies of pro traders, also known as Providers on CapitalXtend. One can register as a Follower by clicking on the "Invest Now" tab under MyCapital. After that, you will redirect to a user portal. Click on "Register as a follower" at the bottom left of the portal. This will further redirect you to the subscription Registration page, where you can create a new subscription. Enter the details like trading account ID, password & choose a provider that suits your trading style and the type of offer, if provided by him and then Click on "Register". It will redirect you to the My Portfolio page. Here you Click on the Providers name to enter the Provider Profile Page. Here, you can click "Activate" and confirm it again to start CopyTrading. Copy Trading grows your passive income without putting any effort into making strategies.

Also read: Basic Forex Terminologies Every Trader Should Know!

How does copy trading work?

Copytrading allows you to connect a portion of your investment portfolio with the investment portfolio of a trader that you select. When you copy a trader, all of their open transactions will automatically be copied to your account after you have done so.

In addition to this, all of their actions from the future are going to be copied over to your account automatically. You will be asked to decide how much money you would like to put into a specific trader.

In most circumstances, the total amount cannot exceed twenty percent of your portfolio. The amounts that are used in the trades are a determined percentage of the trader's portfolio based on the amount of money that you have selected to invest.

Imagine that you now have a balance of one thousand dollars in your account. You do not currently have any open deals, but you have made the decision to copy the trades of another trader.

It's your first time attempting something like this, so even while his numbers appear encouraging, you don't want to put too much money into it just yet. This is the reason why you invest one hundred dollars (or ten percent of your total funds). The trader currently has one open position, and that trade has been copied over to your account.

A portion of the trader's portfolio equal to the quantity of one hundred dollars that you have invested. If his portfolio is worth USD 1000 (and for the sake of this calculation, let's assume that it is), then your investment accounts for 10% of his portfolio. If he makes a trade for USD 100, then you will make the same trade, but the money that will be invested from your account will be 10% of the money that he invested; in other words, USD 10 if he invested USD 100.

This means that if he makes a trade for USD 100, then you will make the same trade for USD 100. Because the mechanisms are computerised, you don't need to worry about performing the computations; in fact, you won't even need to move a muscle because the system will handle everything on its own.

Suggested read [ Forex Copy Trading Tips ]

Advantages of Copy Trading

Copy trading is a useful feature that has gotten much popularity among investors lately. Traders can mirror the actions of other pro traders in the market. This means you can easily replicate the positions opened and managed by someone else. 

Here's how copy trading is beneficial for you.

A good option for New Traders

Beginners in the trading market are usually inclined to find a method that works for them swiftly. A simple way to make money trading is by following in the footsteps of other successful traders. Copy-trading allows you to replicate the trades placed by expert traders, and you can start making a good profit immediately.

In copy trading, you do not need to have vast experience or knowledge of the market. Your account automatically copies the exact trading patterns placed by an expert trader. When a provider makes a profit, you also make money.

Low Risk

Frequent losses can make you bankrupt & run away from trading forever, and that is exactly the case with many of the new traders. Those traders who invest a lot in their trading account despite having limited resources can suffer great losses by placing the wrong trades. However, this isn't the case when you are copy trading. You can monitor and copy the activities of pro traders; you are less likely to lose. However, it is recommended that you read the review of a copy trading platform before joining it.

A good option for Investors who are pressed for time 

Even though creating a profitable trading method takes time, research, and energy, Copy trading strategy reduces the amount of daily work you dedicate to trading, which means that you can make a profit without spending much time over it.

Disadvantage of copy trading

Traders can't make choices on their own

Discretionary trading is clearly the opposite of automated trading, which means that you can't make choices on your own. This means that you won't be able to decide when to get into (or get out of) the market based on how the market is doing and what news is out there.

So, if the market changes in ways you didn't expect, your trading strategy might not be able to handle it. For example, some trading methods work well in markets that are very volatile but not so well in markets that are very popular.

Technology dependent

Even though one of the biggest benefits of systematic trading is that it removes human emotion from trading decisions, making them more logical, it also means that you're completely dependent on technology, which has its own set of problems (Internet connection cut, network crash, computer/server problems, etc.).

Difference in pricing of trades

Sometimes, your trade can't be done at the same price as the trade you're copying, or at all. Because there is a delay between the original trade and the copy trade, market conditions can change before your trade can be made.

You can't sell an asset if no one wants to buy it, and you can't buy an asset if no one wants to sell it. This is mostly a risk when trading assets that are hard to sell, like exotic currency pairs or small-cap stocks. To avoid this risk, you should copy traders in popular markets. For instance, it's very unlikely that you won't be able to find someone to buy or sell EUR/USD.

How to choose the best trader?

Observing the Trader Total Return: On studying the return rate, a beginner can easily follow the percentage and vouch for the trader with 75 or higher percent. Although there is no certainty of gaining a profit by copying them, it is likely more assured that they know their dealing.

Checking Return Volatility: The Volatility can tell a lot about a trader and can be considered an actual parameter to determine their overall success. In each market, higher volatility means riskier security.

Return Percentage (30 days): Return Percentage is the ratio of the net return on investment and cost of an investment expressed in percentage. This provides a rough estimate of the probability of success of the trader.

Copy Trading with CapitalXtend

CapitalXtend offers one of the most diverse copy-trading platforms and provides a simple user interface for beginners and pro traders. On accessing the copy-trading tab under MyCapital traders’ room, one can easily make out the top traders' details, benefits & Copy trading system.

The traders who are occupied prefer copy-trading. Factors that proved to be an asset for traders trading at CapitalXtend are:

• CapitalXtend gives a chance to beginners by giving them a maximum $300 deposit bonus.
• Margin trading has higher rewards but also carries higher risks. However, CapitalXtend provides high leverage & margins so that a trader can elevate his trading position.
• The data is displayed in real-time and is more precise.

Conclusion:

Getting inspired by colleagues or an expert trader and beginning with trading cryptocurrency sounds incredible. However, it's not that easy trading without knowledge is equal to shooting in the foot. The forex market fluctuates a lot, and you can lose a lot of money if you don't have prior experience.

Trading is a business that provides people with the opportunity to make money by buying and selling digital currencies. It is considered as an asset class, with many trading centers functioning for this space. Copy trading is one of the quickest ways to make money via investing.

CapitalXtend provides all the necessary information to the followers about the expert traders and hence making the platform transparent and empowering traders. Now you have all the reasons to start your trading journey with copy trading at CapitalXtend.