Pros and Cons of Copy Trading in Forex

Manual forex trading (the act of making all your trading decisions based on your own research), for most of us, is a daily struggle. We’d have to always deal with the unexpected rise and/or drop in the value of our trades which in turn totally puts a blow on our well thought of strategy. We have been very vigilant not to be emotional when trading, but seeing that sharp, and very RED drop in our trades just makes us cringe and makes us want out of the game. All of these I have experienced as a forex trader and I have written a blog post about this (my experiences in manual forex trading) before. Do these sound familiar to you as a trader?

EUR USD Sample Forex Chart

Just when you thought you’re about to gain…

Thankfully, there are trading platforms which now allow us to automatically copy the trades of other traders (copy trading, or sometimes called social trading), like eToro (your capital is at risk), ZuluTrade, and Currensee. You just have to choose who to follow from a vast selection of tested traders complete with their followings and popularity rankings to help you decide which trader to copy your trades from (I have also written a blog post on how to make an informed decision in choosing who to copy in social trading). In return, the ones being copied receive a commission for each successful trade. With copy trading, you can just sit back, relax, and just leave it all to the experienced trader. Even someone who know nothing about trading and the markets can join in, be his own boss, and make a living out of it just by copying the actions of experienced traders. What a relief, eh?

Stop it right there!

Before you even leave this page and look for a copy trading platform to join, know that there are advantages as well as disadvantages to copy trading. Many traders would swear by copy trading, but there are many seasoned traders who lost everything in copy trading as well, so it’s better to weigh all the pros and cons according to your needs to decide if copy trading will suit you best.

Pros

  • It is possible to earn some money – if you’re willing to take the risk.
  • You can join in with little knowledge of the market.
  • Passive income – other investment venues would require more effort and time.
  • May be better than doing transactions on your own, if you’re an emotional trader like me
  • Manage risks more effectively than doing manual trading – there are a range of expert traders to follow. You can copy as many as you want.

Cons

  • Forex, whether manual or copy trading, is pure gambling.
  • Finding someone to copy from the sea of impressive profiles is a form of risk in itself. From the hundreds of profiles, you can be sure to find some reckless, therefore risky, traders in them.
  • Copying even the most knowledgeable traders is still a form of risk. Some traders can have so much copiers and never lose on hundreds of trades, only for them to lose their money on one single trade.
  • A huge percentage of traders are actually not making any money from Forex.
  • Like in manual trading, it is still almost impossible to predict how it will all turn out.
  • Traders you copy may not care about you, their copiers, when trading – they might only care about their commissions.

If you do choose to try copy trading, here are some valuable tips you can consider:

  • Like in most investments, diversify. Spread your investment over various traders. It is normal for seasoned traders to have bad weeks, so copying a number of skilled traders serves as a buffer when one of them is having a difficult trade.
  • Even if everything’s set on auto, don’t just sit back and relax. Monitor your trades, and also the ones you copy. Frequently re-evaluate if you are still copying the right traders. If you notice that you have copied a bad trade, be ready to un-copy and save your money from further loss.
  • As I’ve always said in other blog posts, do your research. The more you know, the lesser the risk. You still need to do your homework.
  • Carefully choose who to copy. Like in trading, selecting who to copy is already a risk in itself. When selecting through a number of profiles to copy, look for accomplished, skillful, tried and tested traders. For example:
    1. Look for those who are very cautious in their actions. When I say cautious, I mean those who normally do not put all their money on one single position. 2. Choose those who take one small step at a time over those who’d rather go all in. Basically, you do not want to copy a risky trader. I mean we’re all taking risks but not that much of a risk.
    3. Look for traders who have already made hundreds of winning trades. You want these guys over those who have a really high win score but with only a few trades.
    4. Look for traders who logs in almost everytime and makes frequent trades. It’s kinda frustrating to copy someone who only trades every now and then.

It is possible to earn in Forex, but Forex is VERY risky. As I’ve always said, you can just invest a small amount you can afford to lose, unless you’re ready to watch all of your life savings go down the drain when something goes wrong. Above blog post is just my opinion; it will now be upon you, the investor, to discern if copy trading is right for you. Good luck!

All trading involves risk. Only risk capital you’re prepared to lose. Past performance is not an indication of future results. This content is for educational purposes only and is not investment advice.

Hope this helps,

FRUSTRATEDBILLIONAIRE

What are your experiences on copy trading in forex? Feel free to Share Your Story, comment, share your tips, or ask a question. Please also like me on Facebook and Twitter! Thank you!

FrustratedBillionaire