Why do investors use copy trading?

There are many different strategies and approaches to trading. The traders with the highest chance of success and profit are those who aim to fully understand all the different aspects of trading, and the various strategies at their disposal.

With that in mind, a strategy used by many traders worldwide on a range of different markets, is copy trading.

In this article, you’ll learn all about what copy trading is, and most importantly, what the benefits are of this form of trading, that seem to draw in many investors. Read on to find out more.

What is copy trading?

Copy trading is a strategic form of trading that involves an investor copying the trades and approaches of another expert trader.

Whether you’re already fairly experienced with trading, or a beginner on the market, there are always more skilled and knowledgeable traders who you can learn from.

This is the fundamental process of copy trading – where you open up a specific copy trading account on your chosen platform, and follow in the exact footsteps of experienced traders.

For instance, if the experienced trader – the copy trader – were to invest in Vinci shares, you – being the copying trader – will have all your trades automatically mirror theirs. As the Vinci share price moves, both you and the copy trader will receive your returns accordingly.

Until you end the process, everything this investor does will be copied by your own platform, such as opening positions, closing them, etc. Naturally, the amounts invested will be dependant on the capital you put down, and may not be exactly the same amount as the copy trader.

However, an important factor to remember is that although you’re directly copying the investor, your returns won’t always be exactly similar. Not only might you have invested different capital, but there can also be delays in the opening of a position you’ve copied from the trader.

Once you fully understand how copy trading works, and take time to analyse the process, you can begin copy trading on your chosen platform.

What are the benefits of copy trading?

There are various benefits that come with adding copy trading to your portfolio. These many advantages include:

  • Learning from a seasoned professional

One of the biggest benefits of copy trading is that you get to learn the knowledge and skills of trading from a more experienced professional.

Trading can be complex, for beginners and regular traders alike, so it’s always good to have the option to follow in the footsteps of someone more well-versed in the process.

These experienced investors will be able to navigate the market more effectively, potentially spotting more profitable trade opportunities, whilst having better accuracy when opening positions and conducting technical analysis.

These are just a few of the areas where these investors may exceed your own individual experiences of trading, and therefore, they can help increase your chances of success.

  • More time efficiency

Copy trading also has the benefit of making your entire trade experience much more time efficient.

A huge aspect of the copy trading process involves very little intervention from you as the copying trader. Once you’ve selected the trader you’d like to copy on your chosen platform, much of the process is handled automatically through the investor’s trades being mirrored in your own.

The only intervention needed from you will be to begin and end the process, as well as potentially altering your invested capital if necessary.

As a result, you can mostly have all your trades and surrounding aspects handled automatically, leaving less of your time taken up.

  • Diversification of trades

Another reason why copy trading is highly beneficial is due to the fact it can help diversify your trade portfolio.

It’s not unusual for many traders to have a particular style of trading or a single market they always invest in. Whilst this can be profitable, it also removes the chances of success that lie in other forms of trading and markets.

When copy trading, it’s likely the trader you’re copying will be investing in a range of different markets, which, since you’ll be copying their trades, means you can benefit from the diversification also.

With more trades across various markets, you not only open new avenues for profit, but can also remove the chances of all your capital being lost when one market takes an unfavourable hit or turn. Essentially – not putting all your eggs in one basket.