All You Need To Know About Copy Trading: Explained By An Expert

By Wilbert S

January 10, 2024   •   Fact checked by Dumb Little Man

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Financial trading is quite diverse and offers many opportunities to make money. While some people may prefer to trade stocks or forex, others may opt for cryptocurrency. Due to the nature of the financial market, the number of traders is increasing daily. And financial markets are adapting to this new era of digitalization and globalization.

There are numerous ways to make money from trading. Some people may day trade, while others may opt for a more long-term approach like trading CFDs, cryptocurrencies, or commodities. However, one of the most popular methods of trading is copy trading.

Copy trading is a relatively new investment concept that has recently gained immense popularity. But what is it, and how does it work? To answer this, we have got Ezekiel Chew, an expert on the topic, to explain everything you need to know about copy trading.

Ezekiel Chew is Asia Forex Mentor’s CEO and founder of Asia’s largest forex education company. He is also a well-known forex trader, having been featured in major media outlets for his exceptional results. In this guide, we will discuss everything about copy trading, including steps to copy trade, mirror vs. copy trading, its pros and cons, and more.

So, without further ado, let’s get started.

What Is Copy Trading?

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The concept of copy trading is simple. It is a type of investment where traders copy the trades of other successful traders. It aims to copy the strategies of other traders to achieve similar trading results.

Copy trading is also known as social trading or auto-trading. It is a form of trading that has been made possible by technology. In the past, trading was only available to institutional investors or wealthy individuals who could afford expensive software.

Copy trading is done through a dedicated platform that connects investors with expert traders. These platforms allow investors to see the live trading activity of other traders and copy their trades automatically.

Copy trading is different from traditional investing, where the investor would have to analyze the market and make trading decisions on their own.

In real-time, copy traders make use of technology. For example, trading signals may be shared on social trading networks by skilled traders to their fans or other traders. Because social networks enable almost instant communication, these indications are available to traders in a matter of minutes, allowing them to execute the transactions as soon as feasible.

Two main types of copy trading include:

Automated: It is a type of copy trading that uses computer programs to execute trades automatically. The program is linked to the trader’s account and automatically copies the trades.

Manual: This trading type requires the investor to execute the trades manually. The investor would need to monitor the trades and copy them manually.

Steps to Copy Trading

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Copy trading presents various options for working. The majority of these methods vary depending on the financial market you choose to participate in. In addition, depending on the goal or objective of trading, several copy trader’s strategies may also differ. However, despite the many variables, certain elements will stay the same.

#1. Open Trading Account

The first step is to open an account and a copy trading account. You can choose any platform as there are different trading platforms available. It is important to choose a broker that a reputable organization regulates.

#2. Choose Professional Trader

After opening an account, you need to find a reliable and professional trader to determine your success being a copy trader.

There are a few things you should consider to choose a trader, including their trading performance, the market they use to trade in like options trading, CFD, etc., and their trading tools. Moreover, they should also know about risk management, as it is one of the most important aspects of trading.

#3. Set Risk Management Parameters

It is important to set risk management parameters during copy trading. This includes setting a stop-loss and take-profit level. A stop-loss is an order to sell a security when it reaches a certain price. A take-profit is an order to buy a security when it reaches a certain price.

#4. Decide On The Capital

After deciding which trader to follow, you must consider how much money you want to invest with them. Ezekiel advises investing in a few traders to avoid losing money rapidly. Also, you can diversify your investment and reduce your risk.

Always remember that even experienced traders can have bad luck. If this occurred, you would lose your portfolio in seconds. You may always add extra money to enhance your portfolio if the trader is doing well and improving it.

#5. Start Copy Trading

The last step is to start your copy trade. This can be done by following the trader’s moves or setting up an automated system. You can also find a social trading network and start copying the best-performing traders.

Copy Trading vs. Mirror Trading

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Most people get confused between copy trading and mirror trading. But, do you know the difference between the two? Well, copy trading involves copying trading without questioning the trade. You just need to copy the trade and move on. On the contrary, in mirror trading, you must analyze the trade before copying it.

This is because, in mirror trading, you receive trade signals that need to be analyzed before copying the trade. So, you need to know about trading to start using the mirror strategy. However, you do not need to analyze the trade in copy trading as you are copying an experienced trader. The trader already analyzes the trade, and you just need to copy it.

Traders have traditionally attempted to duplicate successful algorithms created through automated trading. First, these algorithms assisted them in developing trading methods. After that, they attempted to copy it to earn money.

Many market participants recognized that they might save time in the long run if they could just copy the trades immediately. This is how copy-trading was born. This also explains why copy trading and mirror trading are frequently conflated.

Is Copy Trading a Good Idea?

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Likewise any other trading strategy, copy trading also shares a fair share of advantages and disadvantages. So, before you start trading at any copy trading platform, you must know both sides. In general, if you follow the method of a successful trader, you will almost certainly be successful. However, copying a trader who produces more losses than profits will continue to lose money.

According to research, almost 12% of the people who choose profitable traders and copy their trades gain more profit in the long run. So, if you are a beginner, you should start your journey as a copy trader to make more profits while taking huge risks. However, if you can’t choose a trader that fits your trading style and is successful, you might not be able to do so. This may result in financial loss.

Copy trading also works well even for experienced traders because it causes them to follow their trading strategies more strictly. They have put real money on the line by copying someone else’s trades.

Moreover, this trading strategy does not require a lot of time. You can do it part-time as it only requires around 30 minutes to 1 hour of monitoring per day. Furthermore, copy trading is a great way to diversify your investment. You essentially invest in different traders when you copy trade, reducing your risk.

However, copy trading also has some disadvantages that you should be aware of. For example, it can lead to overtrading. Below are a few of those risks:

#1. Market Risk

The terms “currency, commodity, index, option, or stock risk” refers to the situation in which an asset’s value drops and the price plummets. If an investor had imitated a trader who had bought assets on that specific asset, they would suffer significant losses.

For example, suppose one trader has an extremely strong week on the stock market, and another has a very bad week. In that case, putting all your money in with one individual who has had a terrible few days is risky and highly unprofitable. Investors should diversify and distribute their portfolios among numerous traders and trading methods to avoid this situation.

#2. Liquidity Risk

When traders buy or sell an asset, they are said to have taken a position in that security. Therefore, the number of positions investors take will affect their liquidity risk. If an investor has too many positions open at once, they may be unable to liquidate all of their assets in the event of a sudden market crash. This could lead to significant losses.

Imagine a trader purchases Company A’s stock for $100 per share. The investor predicts that the value of the stock will rise to $120 after it drops to $85, but only if it reaches that level. Unfortunately, this investor may not be aware of this because they blindly follow the strategy. As a result, investors might exit their positions too soon or too late and lose money when the stock’s price drops.

Advantages of Copy Trading 

  • Copy trading can save a lot of time as you don’t need to do extensive research on the assets. Instead, you can just copy the trades of a successful trader and earn profits. As an investor, you just have to check the market once in a while to see if your copied trade is performing well or not.
  • Copy trading requires less capital, not investing in a single asset but in different traders. This diversifies your risk and reduces the money you need to start trading.
  • When you copy trade, you get an opportunity to learn from the best traders in the market. You can see how they trade and their strategies to make profits. Also, you can learn new strategies and overview the market behavior without making any trade.
  • Copy trading allows you to make sound investment decisions as you can research the trader before copying their trade. You can see their past performance and get an idea about their trading style. This helps you to decide whether a particular trader is worth copying or not.

Disadvantages of Copy Trading

  • Copy trading can be expensive as the copying trader charges a commission for every trade. Also, if you are new, you might not be aware of the different strategies and might copy a bad trade.
  • Professional traders may experience a losing streak from time to time. This results in the retail investor accounts losing.
  • It can also lead to overtrading, as you might copy the trades of a trader who is taking too many trades. Again, this can impact your investment negatively.

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Ezekiel Chew's Biography

Ezekiel Chew is a name that is well-known in the Forex trading industry. He is a highly successful Forex trader and trainer who has taught people how to trade Forex for many years. His Asia Forex Mentor program is one of the most popular and well-respected programs available, and a wealth of experience and success backs it.

The program is designed to teach people everything they need to know about Forex trading, from the basics to the advanced strategies that professional traders use. It is a comprehensive program covering all Forex trading aspects, and a highly experienced and successful trader teaches it.

The program is suitable for both beginner and experienced traders, and it has been designed to give people the best possible chance of success in Forex trading. It is a highly effective program backed by a wealth of experience and success. Signup Now!




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Conclusion: Copy Trading

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Copy trading can be extremely useful for investors who want to save time and make sound investment decisions. Whether you are a less experienced trader or an experienced investor, you can copy trades and learn from the best traders in the market.

However, it is important to know the risks involved before starting to copy trade. So, make sure to do your research before copying any trade.

Copy Trading FAQs

Is Copy Trading legal?

Yes, copy trading is legal as long as the broker you are using is regulated, which means you trust them with your trading portfolio. You won’t be held liable for the copied trader’s actions.

How do you profit from copy trading?

To become a successful copy trader, all you have to do is follow a profitable trader. You will automatically be profitable if the trader generates profits and contributes to your portfolio’s growth.




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Wilbert S

Wilbert is an avid researcher and is deeply passionate about finance and health. When he's not working, he writes research and review articles by doing a thorough analysis on the products based on personal experience, user reviews and feedbacks from forums, quora, reddit, trustpilot amongst others.

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