What is copy trading and how does it work

What’s copy trading all about? Why are savvy investors leveraging this powerful tool to optimise their trading portfolios? We break it down for you.

Navigating financial markets can be challenging. It demands a willingness to explore new avenues to enhance one's trading performance.

If you're seeking to refine your approach and elevate your trades, copy trading might be up your alley. 

But what is copy trading? And how does it work? In this blog post, we'll delve into copy trading and explore its potential benefits and risks.

Jump to:

• What is copy trading?
• How does copy trading work?
• Benefits of copy trading
• Copy trading best practices
• Navigating the risks of copy trading
• Is copy trading for you?

What is copy trading?

Copy trading (social trading or mirror trading) empowers you to replicate the trades of experienced traders. This allows you to benefit from their knowledge, experience, and trading acumen. 

By observing and replicating the strategies of successful traders, you can gain valuable insights into market dynamics and effective trading techniques. Over time, you may develop your own trading style and risk management approach, gradually transitioning towards independent trading decisions.

Like an aspiring artist emulating a master painter

Imagine an aspiring artist seeking to master the techniques of a renowned painter. They observe the master's brushstrokes, colour choices, and composition techniques. As they practice and replicate the painter's methods, they gradually develop their own artistic style and skill.

Copy trading parallels this process of learning. Just as an aspiring artist emulates the techniques of a seasoned painter, copy traders replicate the trades of experienced professionals. 

How does copy trading work?

In essence, copy trading involves 3 steps:

1. Choose your platform
Select a reliable copy trading platform. Copy trading platforms (such as Deriv cTrader) act as intermediaries between experienced traders (signal providers) and those seeking to copy their trades (copy traders). It’s a good idea to research popular platforms before choosing one. Ensure the platform matches your preferences and offers a diverse range of skilled traders.2. Select your traders
Once registered, explore the platform's marketplace of traders. Evaluate their performance metrics, risk tolerance, and trading strategies. Look for a balance between risk and return that aligns with your investment goals.3. Allocate funds
After choosing traders to follow, allocate some of your funds to replicate their trades. The platform automatically mirrors the trades of your selected traders in real time.

Deriv cTrader offers a seamless way to start copy trading.

Explore copy trading on Deriv cTrader. 

Benefits of copy trading

Copy trading offers the following benefits:

Copy trading best practices

While copy trading offers a convenient approach to trading, it's crucial to adopt sound strategies to maximise its effectiveness. Here are some best practices to consider:

Now that we've explored how it works, the benefits, and best practices, we must remember the possible risks.

Navigating the risks of copy trading

Despite its potential benefits, copy trading has risks. Here are some of them:

This list of risks isn’t exhaustive. It’s crucial to consider all the risks involved before embarking on copy trading.

Is copy trading for you?

Copy trading presents an opportunity to navigate the financial markets with a degree of confidence. However, it's crucial to approach copy trading with caution. Understand the inherent risks and adopt sound risk management practices.

By carefully evaluating signal providers, diversifying investments, and establishing clear risk limits, you can harness the potential of copy trading while mitigating potential pitfalls.

Like any trading approach, success in copy trading requires diligence, research, and a commitment to staying informed about market trends.

Explore copy trading with Deriv cTrader

Get started with a demo account. If you don’t have one, sign up for free and get 10,000 USD virtual money to practise.