As a beginner, I know you would want to know about what is copy trading and other forms of trading that relate to it.
Trading comes in different forms and types one of which copy trading belongs.
Aside from copy trading, there are other types of trading such as social trading and mirror trading.
Copy trading is a type of trading that allows a trader to copy the trades of another.
Sounds funny and weird? Do not be shocked.
This is a type of trading that many beginner traders go into.
It is a form of trading that allows these beginners to replicate the trading style of another trade.
Again, only traders that are not so experienced involve themselves in this type of trading.
In copy trading, a trader opens and closes a position that another experienced trader opens and closes.
Most copy traders link their forex account portfolio with that of the trader they want to copy.
However, they are to decide the portion of their money that they want to use in trading.
Furthermore, one of the ways by which traders copy trade is by using the same entry and exit points as the trader they are copying.
In addition, just like I said earlier, many people mistake copy trading with their forms of trading.
It involves the use of the same position that a trader opens and closes.
While mirror trading focuses on using the same trading strategy that another trader uses to place his trades.
Social trading on the other hand involves the sharing of trading ideas and information among traders towards making profitable trades in the forex market.
Advantages Of Copy Trading.
This form of trading has so many advantages and here are some of the advantages,.
It Is Lucrative: When a trader copies the trade of a very good and experienced trader, he makes an excess profit.
When such a profit gain is consistent in the trades he place, this form of trading becomes a lucrative business for him.
More Knowledge Of Price Movements and Actions In The Market: One of the most difficult things that beginner traders find hard to comprehend is how prices move.
This form of trading helps many traders to understand the different ways that prices move in the forex market.
Also, most novice traders find it hard to trade under different market conditions.
This form of trading gives them an orientation on how to trade in difficult market situations like the range-bound market.
Disadvantages.
The major disadvantage of copy trading is the risk attached to it.
A mistake from a trader can lead to excessive losses for other beginner traders that copy him.
Also, past results do not affect the future. An experienced trader can also lose trades at some point.
The forex market is unpredictable. A trader with a high win rate yesterday might be the highest loser today if he does not pay attention to fundamental analysis.
In addition, another major disadvantage is that this form of trading focuses on short-term trading more.
Lastly, it makes many beginner traders too dependent on forex signals.
This makes them become lazy thereby making them lose interest in discovering new trading strategies.
Frequently Asked Questions(FAQs)
Considering the advantages attached to it, it is a very good idea.
However, it becomes a bad idea when a trader becomes too dependent on it and he starts to lose interest in discovering trading strategies himself.
Yes, copy trading is legal. What a trader needs to do to start is to get a platform that supports copy trading and that is it.
In this form of trading, a trader opens a position that another experienced trader intends to open or close.
The experienced trader analyzes the market and provides necessary information about the market for the copied trader.
SUMMARY
Copy trading is a form of trading that allows traders to replicate the trades of another trader.
The other trader provides the copied trader with necessary information about the forex market.
However, this form of trading has its advantages and disadvantages.
One of the advantages is that it can be highly lucrative.
This happens once the experienced trader gives the right analytical information about the market.
The first disadvantage attached to this type of trading is the risk.
Once a copy trader replicates a trade that will yield losses, he might lose much money and even his capital.
Another disadvantage is that this form of trading makes beginner traders become too lazy to analyze the market themselves.
They become over-reliant on signals thereby losing interest in developing their trading skill.
Do you now know what this trading form is about?
I hope this article was helpful?
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