What do you know about copy trading?. How to take full advantage of this tool? I can give you a dozen questions that will hit your mind in an instance after hearing the word copy trading.
Here are some of their answers that will help you to become a professional copy trader
What is copy trading and is it legal?
A first thing first, as you know copy trading could be an amazing tool to generate passive income, but is it legit?
The answer to the question depends on your region, however, most countries consider it as a legal strategy. To be more specific, in most countries they allow you to learn and copy from other traders’ experience, including coping with their trade rate and all that comes after. In order to do that, you will need to focus on the essential part first, which is choosing your broker. Moreover, the same broker whom you have chosen must allow you to copy trades, and that’s an important thing to keep in mind otherwise it’s not legal.
For example let’s take stock market broker, which allows copying trades, and more likely to have a connection with a copy trading service so you could learn more copy trading and practice it.
How does it work?
You would need three parties to practice copy trading, the trader which is the one whom you follow. The copier is you and a broker platform like stock market broker or Dtrade or any broker that allows copy trading.
For the reader and the broker, they both must allow copy trading otherwise you cannot practice it.
As for the profits and the splitting profits that depend on the two parties, the trader and the broker platform, which usually demands a commission for using its platform.
The principles of copy trading
When thinking about the principles or basics of copy trading you are thinking about choosing the right traders to follow. It’s highly important to know and take your time before you make that decision.
At this moment you are making a choice between earning more passive income or risking your capital gain. Most traders fail in copy trading not because they are not bold enough, it’s simply because of their poor ability to separate between a good trader and a bad one.
To make it easy for you here are some of the basics that every copy trader follow
- Take the necessary time and make a decision based on logical information and number before you choose the trader you aim to follow
- Avoid free traders leaders, while the word free makes it like you are not going to lose, the reality is your chances to lose it all are higher than the chances of gaining more.
- Choosing the right broker is no less important than choosing the right trader.
- Before you start copy trading, don’t put all the eggs in one basket, meaning you need to evaluate the risk and profits before you go and follow the traders.
- Read the numbers, always compare between the past and recent performance of the trader you follow and that includes your performance as well
The advantages of copy trading
A good learning strategy for new traders
Typically new traders find it extremely hard to stay in the trading community because of their low experience and knowledge. Copy-trading could be a great opportunity for this type of trader, they will learn and take full advantage of traders who know and have been in this field for a long time.
Helps to diversify your portfolio
Don’t put all the egg in one basket, the term is well known for investors and traders, which refer to their portfolio. Trading in the same assets could be a great way to generate income only if those assets are still generating a profit and that’s impossible in the current economic downturn. Copy-trading prevents you from risking your money on a single asset, it helps you to know how to pick your assets and diversify your portfolio. Eventually rising your capital gain
With the right trader and broker, you can use copy trading and follow the trader you chose to generate more income and make as your passive income tool for life.
Lower your losses and manages your financial risks
When choosing a certain investor or reader to follow you are not obligated to stick with him all the time which helps you in the future in big times. For example let’s say your trader starts to lose, this will only mean that you should limit your losses and move over to the next and follow another trader. By doing this you will limit your losses and manage the financial risks.