Copy trading in 2021: Here's what you should know

Copy trading is a great way to get into trading forex, stocks, and many more assets. It has been around for quite a while thanks to well-recognized services such as eToro and others. So, what exactly is copy trading?

Copy trading means you copy every action of another trader. When they open a trade, you open a trade. When they close a trade, so do you. Copying every trading action of another person then means you are basically copying their portfolio too. 

There are two sides to every copy trading connection. You have the follower or copier who is the trader doing the copying, and the signal provider who is the person you are copying from. With each signal provider comes their own technique and risk profile. This then is something you need to ensure matches your own needs before copying.

What does it mean to be a successful Signal Provider in 2021

Looking more closely at what you need to be successful as a signal provider in a huge and expanding industry where many brokers are working hard to offer better services than their competitors, there are a few things to note: 

• It may well mean you are basically working full-time with any one broker if you are to become really successful. This is a time and energy commitment for sure.
• Each broker will have its own requirements for signal providers to be accepted. This could be a proven success rate elsewhere, a certain number of followers, or a minimum capital requirement Brokers are typically proactive and stringent with these requirements to keep signal quality high.
• The payment schedule and terms can vary by broker. You may be paid periodically, or depending on how many followers you have. This may be directly from the broker in addition to commission earned from copiers.
• Some brokers may also require an exclusivity agreement if you reach a certain following. This means you would not be able to work with any other competing broker.

For Copy Traders: How to protect your money

From the copy trading side, even though this is an easier way to get into trading, and there is definitely less of a learning curve than you will find with trading solo, there are still several points you need to consider. 

You have to know or learn how to evaluate the performance of other traders well. The brokers make this very easy often with many stats available on trading performance though you still need to ensure you are making the best choice and not just following someone who is on a lucky trading run. 

Another element to this is that you will want to be well aware of your own risk management strategy. Sure, the broker you follow may have almost no losses but they may be employing a much riskier trading strategy than you are comfortable with. 

Overall, despite these factors and the need for your own due diligence, the top brokers usually keep a close eye on signal providers to make sure everything is above board and as top quality as possible.

New Copy Trading horizons

Copy trading has been around for a while. This does not mean it is stuck in the past though, and this is something the InvestinGoal specialists have noticed:     A number of brokers have been introducing      unique and innovative copy trading features and environments you may be interested in. 

Examples here include Darwinex who sort their traders using a special algorithm that provides unique and insightful metrics like a skill score, intelligence score, and more stats in a completely objective way. ZuluTrade is another that has gotten creative. They now offer crypto copy trading with signal providers who are focused only on cryptocurrency investments.

Then a little side-step from direct copy trading takes you to several similar products that many brokers are offering with increasing frequency. These include the likes of blends and ETFs that, while not directly copying any one trader, do allow you to invest in broader market segments and achieve more uniform returns based on sector performance. 

At the same time, the companies behind curating these ETFs and blends are always trying to add more and increase the number of assets you have the opportunity to invest in.

Copy Trading: Types and Viable Alternatives

When it comes to copy trading, there are a few different types and variants you may encounter along the way. 

Mirror Trading: This is one of the original forms of copy trading. Here your positions open automatically at the same moment the other traders do. The same goes for closing the trade. Mirror trading is much more based on algorithms, auto-trading bots, and pre-defined trading strategies. Traders code certain trading signals and strategies.

Copy Trading: The standard form of copy trading, your positions open at the same time as the trader you are copying, but most often you can decide when to open or close the position which will copy the signal provider as long as their position is open.

Social Trading: Not copy trading but often going hand in hand, social trading allows you to interact with other traders using a broker or trading platform through a number of features with some even allowing direct communication.  

Looking at the options above, you will note that the only truly comparable substitute for copy trading, is mirror trading although this type of trading is on the decline with the majority of brokers preferring to offer copy trading. 

Though not permitted by every broker, a viable alternative to copy trading you may also consider are EAs. These are offered through trading platforms like MT4, MT5, and cTrader where the same feature is known as cAlgo. This allows for trading strategies and techniques to be programmed or imported from others in what can be a form of indirect copy trading though closely related to algo-trading.