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What is Copy Trading and how does it work?


Are you interested in trading the financial markets but feel like you don’t have the time to learn new strategies? Maybe you already trade but can’t find a way to take your trading up to a professional level, or perhaps you’re just looking for an easier way to improve on the strategies you are already using. If this is the case, copy trading may be for you.

Whatever your reasons, copy trading opens up a world of unique opportunities in the markets. In this article, we’ll explain what copy trading is and how simple it is to get started.

What is copy trading?

Simply put, copy trading allows you to copy trades placed by other traders. The basic goal is to find another investor with a proven track record, and begin copying their trades. Their success may continue and you will be on the winning side of things but if trades do not go in their favour then you will also be copying their losses. Remember to always monitor and keep up to date with the trading performance of the signal providers you are copying.

When we talk about copy trading, there are usually three parties involved:

How does copy trading work?

To be able to start copying someone's trades, first you need to open your own live MT4 trading account. This is the account you will use to follow other traders. It’s worth noting here that once you’ve got a live account, you always have the option to open additional sub-accounts, which gives you extra flexibility. For example, you could use one account for manual trading and another for copying trades.

Next, you need to link your live MT4 account(s) to the Copy Trading app. Once that’s done, you’ll be able to see a list of providers whose trades you can copy. Now it’s simply a case of clicking on a trader to view their stats – this includes things like their past performance, drawdown and the things they typically trade. While copy trading is especially popular in the forex market, it’s not limited just to currency pairs. Each provider or master trader will have their own expertise and preferences for what they like to trade, such as forex, indices, commodities, single stock CFDs, crypto CFDs (not available for FCA retail clients) and more.

Before you confirm that you want to copy a trader, you can adjust the overall risk settings to suit your own goals and risk tolerance. This is important because all traders come from a different starting point – for example, an experienced trader might have more money to trade and a higher tolerance for risk than someone who is only new to trading. The flexibility to follow top traders makes copy trading for beginners the perfect way to start in the financial markets – especially those who lack the time or resources to trade on their own – but more experienced traders do use it as well.

Either way, the ability to change your individual settings helps ensure you remain in control over how much you are risking on each trade.

If all you want to do is copy trades, there is no manual intervention required. You simply click ‘copy’ and your account will automatically start copying the trades of your chosen signal provider. If you would like further information on how to become a signal provider, our guide covers it in detail. You’re then free to go off and do other things while the app will keep running in the background. However, you should always keep an eye on your account, not only to track the performance but also to ensure that you always have enough margin in your account.

Which copy trading platform should I use?

The Axi Copy Trading app allows you to easily connect to your MT4 account and start copying a variety of traders. The in-built leaderboard will give you quick insights about the top provider's performance and help you in choosing the one that suits you. 

It’s worth remembering that you retain full control over your account, meaning you can pause or completely disable the copy trading for each provider at any time. Furthermore, you can control your risk by either mirroring the provider's level of risk and position size or by setting a fixed size per trade.

You can download the Axi Copy Trading app from the Apple Store and Google Play Store now!

Can copy trading be profitable?

If you find a successful trader to copy, copy trading can certainly be profitable. However, trading in general is inherently risky and copy trading is no different. No trader wins every trade, and even though you might have picked them because they have positive results overall, the provider you choose to copy might go through a period of drawdown – meaning that you would be facing losing positions. One way to try and mitigate this risk is to use multiple providers, preferably with different trading strategies/styles to achieve diversification.

Advantages of copy trading

Discover four advantages of copy trading below:

Disadvantages of copy trading

Discover four disadvantages of copy trading below:

Is copy trading too risky?

All trading involves a degree of risk, therefore so does copy trading. However, it is your account, you have full control of it and you can adjust risk parameters to suit your own requirements. Even though you’re copying another trader, it’s always your responsibility to conduct due diligence and not just blindly follow someone because they have proven success in the past.

For example, the trader with the highest return might experience massive drawdowns or could have a very short trading history. Other traders might have lower returns, but demonstrate greater consistency. Unfortunately, there is no way to remove risk from trading, but you can help to reduce it.

What is the difference between copy trading and mirror trading?

Mirror trading and copy trading are similar, but there are some key differences. With mirror trading, you are literally copying whatever the master trader does, including the same position size they place on their trades. With copy trading, you are following the same trading strategy and the exact trades the signal provider is taking, but crucially you can adjust position sizes. This means that if you are not fully confident in all the trades of the master trader, you can reduce the size of your position on certain trades you follow.

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