Copy Trading — What is it & How Does it Work?
What is Copy Trading?
When the copy trading notion was born, it changed the entire industry dynamic. Allowing beginner traders to copy professional traders’ trades into their account – replicating their performance to make money, was something very new on the scene. Now, it is already a matter of casual application.
So why is copy trading so popular? Well, in the case of beginners – it saves you the share of money you are likely to lose in the first days of your trading journey, letting you observe professional trader behavior and learn from it, while in the case of experienced traders – it is a valuable storage of new ideas and strategies.
How does it work?
Copy trading connects a part of your portfolio to the portfolio of the trader, whose actions you want to copy. Once you start copying a trader, all their currently opened, as well as future trades, are copied into your account.
With Copy Trading, you invest a certain sum of your choosing with a typical ceiling of 20% of your portfolio. The sum you invest then becomes a percentage of the trader’s portfolio.
Example: if you invest $200 into copying a trader, and the trader’s portfolio is worth $2,000, your investment is 10% of his portfolio. If he then opens a trade for $200, you will copy this trade, but the money that will be invested from your account is $20 (because that’s 10% of the sum that he invested).
How does the trader that’s being copied make money? Via so-called copy commissions that he gets from each and every one of his followers. He basically gets to harness his knowledge and experience for an extra passive income. Fair, isn’t it?
Copy Trading Benefits
First and foremost, manual trading can be intimidating for newbies. Once charts and patterns come into play – it is a whole new world, which leaves many paralyzed. Indeed, there is a lot to learn, and risking your investment when you don’t know what you are doing adds some psychological pressure. In turn, Copy Trading does not require much trading knowledge. Traders can observe and learn by watching what experienced traders do, as well as draw inspiration from other people’s successes and failures. Additionally, it is a way to save time when starting to trade, as well as a way to diversify your investment. Copying different signals of different traders with different styles can not only help one check out different asset classes, but also help understand which trading style one will be willing to adopt in the future.
Copy Trading Risks
Like everything in the trading arena, copy trading isn’t all rainbows and butterflies, it comes with its own share of risk. Every year, regulators expose a variety of copy signal provider group scams, where untrustworthy traders fish out money from unsuspecting copiers under false pretenses. And even if we don’t consider scam, choosing the right copy strategy provider is a challenge. First and foremost, no trader can entirely avoid market downfalls. Even though you may have analyzed the winnings and charts of the trader to copy, there is still no guarantee that his strategy will last. Then there are the increased costs due to the commission fees paid, as well as the reliance on someone else’s expertise, instead of your own. While to some copy trading has proven a golden learning opportunity, others claim that nothing beats a hands-on figure-it-out-yourself approach.
About Cerus Markets
Established in 2022, Cerus Markets is authorized and regulated by the Labuan Financial Service Authority, Malaysia. With a focus on innovation, Cerus offers a unique crypto derivative product that allows clients to trade over 200 instruments paired with cryptocurrencies. Alongside crypto derivatives, Cerus also provides trading opportunities in Forex, Commodities, Indices, Single Stocks and Crypto.
We believe in empowering traders of all levels with easy and affordable access to the market. Our trading platform stands out from traditional brokers by not charging entry fees, various deposit methods and a wide range of digital assets starting from just $50 and leverage up to 400:1.
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