Copy trading has come a long way from when it first started gaining traction. As of now, in 2018, it is one of the most popular methods of forex trading. You only have to look at the number of traders on popular copy trading platforms to get an insight into how popular copy trading is.
To be successful with copy trading, there are a few tips you ought to observe.
1. Start with a Copy Trading Demo Account
Demo accounts have been a mainstay of the forex exchange industry. They help traders with testing out their skills, improving them and learning about the market before they commit any real money.
With copy trading, it is normal for a trader to wonder what is the point of a copy trading demo account when they do not actually trade the market themselves. The truth is, a copy trading demo account is just as important and there are two reasons why.
First, you will be able to test the effectiveness of the copy trading signal provider. That means you find out how accurate they are, the strategies in place and if they are worth following.
Second, you are able to test drive your own strategy. Remember, with copy trading, one key thing that allows you to be successful is to develop a strategy that will help you build a copy trading portfolio.
2. Choose Your Copy Trading Signal Provider Wisely
When choosing a copy trading signal provider, it can be difficult to find one that is actually genuine and will completely partner with you for best results. That is why it is advisable that you open demo accounts with more than one signal provider.
Open as many demo accounts as you can possibly manage with as many different copy trading signal providers. Test drive all these demo accounts carefully while analyzing their services.
At the end of the demo period, make your decision based on three key considerations.
- Do you prefer a signal provider who is also your broker, or a signal provider who only provides copy trading signals? For a beginner it advisable to have one provider who acts as both your broker and signal provider. For an experienced trader, then you can have a signal provider who is different from your broker depending on your preferences.
- Which signal provider had the best results based on your experience with the demo accounts.
iii. Which signal provider will work best with the amount of money you intend to invest. Remember that most signal providers have a minimum amount specification.
3. Be Flexible and Open Minded When Choosing Traders to Copy
After choosing your signal provider and satisfied you have made the right decision, the next step is picking the traders to copy. For most signal providers, there is a limit on how many traders you can copy simultaneously. For some, it is 100 traders simultaneously with a maximum investment of $500,000 per trade. For others, such as Rakuten broker, it is different.
There is often a temptation to copy only high performing traders. Unfortunately, this does not expose you to varying strategies that will eventually help you to build your copy trading portfolio. Be flexible; copy and analyze performance from top traders as well as average performing traders.
That way, you can instinctively recognize what works and what does not when developing your own strategy.
4. Invest in Stages
It does not matter how convinced you are that you have picked the best possible traders to copy, do not invest everything at once. That is a recipe for disaster.
Take the emotion and excitement out of the equation and invest in stages. As you experience more success and learn more, you can then invest further.
Remember that it will take time. While copy trading is widely popular now, and there are numerous success stories online of people who made millions within a short period of time, you should manage your expectations.
Whether those success stories are true or not, it is crucial to remember that any lasting success takes time. Give yourself enough time to stumble a little before achieving the kind of success others are talking about.