Many brokerage platforms now offer new clients the chance to duplicate the posted trades of others. For those without any experience, or who feel nervous about following their own systems, copying can be an excellent way to learn, take advantage of the skills of others, save time, limit losses, and even join with large groups to have a more significant impact on a particular security’s price action. Here are some key facts you need to know about the method in order to make it work for your portfolio.
Use the Knowledge of Others
There’s power in the principle of imitating experienced traders. When you’re just starting out with your first brokerage account, it’s common to feel uneasy and a little bit nervous. What securities represent the best chance for profits? Which ones are too risky? Which represent good long-term or short-term investments? And, how to identify enough solid candidates to diversity a portfolio? All those questions, and many more, are resolved when you follow the leader. Platforms that are set up copy trade a winning position do all the detail work for you. Your job is to look through the list of trade leaders and select the ones that suit your needs.
Choose an Expert Based on Performance and Risk
When you open an account at a copy trade friendly brokerage platform, you’ll see a list of names, along with statistics about each one. Those are the names of experienced market experts who have opened up their daily buying and selling activity for anyone who wants to follow along. Keep in mind that you don’t have to jump on board immediately. It’s possible to simply follow an expert’s activity for a while and see how they do. After that, if you choose to do so, you can enroll your account in a copy trade setup with that person’s activity. But you can change your mind and un-follow anytime you choose, so don’t feel as if you’re making a lifetime commitment when you decide to emulate the buying and selling of someone else.
Unite with Others to Influence the Market
Another interesting, and powerful bit of data you’ll see alongside each expert’s name is the number of people who are following those trades. For example, if Expert ABC has 400 followers, that could be a good sign that there’s a lot of buying and selling going on in the same direction because whenever Expert ABC makes a move, 400 others do the same thing. That alone can have a significant effect on prices, trends, and other market behavior. It’s something one person alone could never do. In a way, it’s a securities market version of collective bargaining, where thousands of union members negotiate with corporations. There is power in numbers, so opting to follow a popular expert can have its own set of advantages.
Low Time Commitment
Working people don’t usually have enough free time to follow the securities markets from Monday through Friday. Sometimes they only have a few minutes on their lunch hours to check in with online accounts and see what’s been happening since the opening bell that day. When you engage in copy trading, you don’t need much time at all. You simply instruct your broker to follow a particular expert and your buying and selling is done for you. There’s no need to stay glued to a monitor or phone screen, making purchases, setting stops, and selling at the exact right time. Copying is a form of automated trading but one in which you decide whose trading style makes the most sense. Unlike some of the robotic auto-trading apps out there, copying is a much more personalized system that lets you check the accuracy, history, and experience of those you choose to imitate.
It’s a Way to Limit Losses
For conservative investors who cherish the idea of limiting losses, connecting with a seasoned trader can mean limiting losses. It’s understandably common for new account holders to lose money during their first few days or weeks of trading. In many ways, it can be quite costly to learn the ropes of earning a profit in the securities markets. But when you follow a seasoned professional, you can avoid all those beginners’ mistakes. Not only can you avoid mechanical errors, like entering the wrong order type, you’ll be less likely to purchase securities that don’t offer good chances for profit.
It’s a Learning Experience
Often overlooked in discussions of copying is the learning factor. By studying the leader’s behavior, it’s possible to gain unique insights into the buying and selling process, the method of selecting stocks, and techniques for getting in before price rises and getting out before declines.