Forex has made it possible for anyone to access the global marketplace. Successful currency trading, however, requires time and intellectual effort. Aside from professional guidance from brokers like FXTM, there are several ways to limit the possibility of error. One of these methods is Forex copy trading, which is popular among exchange neophytes and veterans in the UK.
The Basic Principle
Sometimes, even seasoned traders have no opportunity to analyse recent market changes. However, it is not a reason to stop Forex activity. Copy trading is based on delegation, which means a professional is tasked with managing a portion of your money. For you, this translates into trading by proxy. For strategy managers who become the decision-makers, the benefit is their fee.
Here is what happens once you sign up for the service. Your funds are linked with those of the expert. All their open trades, as well as subsequent actions, are replicated — or copied — into your account. Hence, it looks as if you were pursuing identical strategies, while you are actually taking no action.
Traders who have only started exploring Forex are afraid of choosing failed strategies. After all, once you switch to a live account, your actual money is at stake. Aside from bringing profit, copy trading is a useful educational tool. Experienced traders, on the other hand, leverage the option to save time and effort.
Five Main Stages
Here is how the process works step by step.
- Pick a Strategy Manager based on the broker’s rating.
- Make a deposit into your account.
- Copy their trades (this is automatic).
- Cash in when the strategy manager makes a profit.
- Pay a fee to the Strategy Manager.
In one possible scenario, you allow the expert to trade with $1000 of your funds. If they use the amount for trades that bring $500 in profit, a lion’s share of it — $450 — will go to you. Meanwhile, they will get the remaining $50 — 10% — as a reward. Naturally, if no profit is made, no commission is paid.
Important Aspects of Copied Trades
The option does not guarantee success. Like any currency operations, the strategy manager’s trades could be profitable or not. A reputable broker provides ratings of featured strategy managers with measurements of their performance. This way, you have the opportunity to pick the candidate who is most likely to bring profit.
Importantly, you can still manage the trades. The positions you find unsatisfactory may be cancelled, just like your connection with the strategy manager altogether. Overall, the arrangement has given rise to a social trading network, where experienced players render services for a commission.
Limitations That May Apply
Study your broker’s terms and conditions for exact details of copy trading. As a rule, the share of funds you can invest is limited (e.g., up to 20%). In this example, if the total balance is $5,000, you could start small and bring the delegated amount to the maximum ($1,000) if the initial results meet your expectations.
Other Ways to Reduce Risks
Copy-trading, which is used in the realms of currencies and stocks, is a valuable tool. Rather than examining trends and building strategies of your own, why not copy the positions of an expert? As long as you keep an eye on their activity and maintain control, the benefits are obvious.
It is recommended you connect to several experts. With portfolio diversification, you invest in different finance instruments. If currencies underperform, you could make up for the losses with profit from commodities or CFDs. The same logic applies to the delegation of trades.
Finally, the availability of copy trading is not an excuse for laziness. It is vital to understand the specifics of exchange operations. Brokers provide relevant educational material, and it should be studied thoroughly. Take time to practice in the demo mode before venturing into real Forex trading. Copy trading is a helpful addition to market knowledge.
You may wish to consider Electronic Communication Network brokers, also known as ecn brokers. ECN is that it connects brokerages and traders in different geographies and broadens the liquidity of trades. It displays the best bid/ask price to the traders available over the network and automatically matches and executes trades.
