Regular readers will know that I'm a big proponent of copy trading. It's something I've been doing for the past few years and had quite a bit of success with. I wanted to put together a post to round up what the current state of Copy Trading is.
Over the past year I've seen new platforms launch, new innovations and some brokers shut down. So here is a state of play for copy trading in 2017.
What is Copy Trading
The name pretty much says it all – with copy trading, you are automatically copying the trades of professional traders. When they make a trade, you do to. The idea is you're attempting to replicate the performance of the trader.
Unlike an investment fund, the money allocated to copy a trader remains in control of the investor. The investor is simply copying another trader, he can choose to stop at any time and your money will stay in your brokerage account.
The difference between Copy Trading and Social Trading
These terms are often used interchangeably but there is a difference. A social trading platform, is simply a place where a trader will share his or her trades publicly. There doesn't necessarily need to be a copying mechanism.
Many social trading platforms, however to have a copy function, where an investor can choose to copy the trades shared by other traders on the social platform.
Finding a Signal Provider
Copy Trading is easy to execute, but finding the right person or system to copy is tricky.
The best place to start is by picking a platform. From there you'll be able to use the platform tools to filter and find the most successful traders to copy.
A signal provider is the person or system that provides the trades you are going to copy. Some platforms only provide signals, and require you to open a brokerage account on a third party. Other platforms are full service.
Making a platform choice will depend on your investment amount and experience level. For beginners to copy trading I definitely recommend choosing a platform that provides the signals and copy mechanism in one. This way you only need to open one account and everything is in the same place.
If you're already forex trading then you probably have a forex brokerage account. If this is the case, then you can find signal providers that will integrate with your broker.
A look at the providers
eToro is an all in once copy trading and social trading network. Traders on the platform share their trades, and this allows investors to copy anyone on the platform. eToro is currently the most popular platform with a few million traders. They have also been around for a while and have earned a reputation as being a trustworthy and fully EU regulated broker.
eToro allows you to copy trade stocks, forex, commodities, indicies and ETFs. They have one the largest range of products available. You can check out my full etoro review here.
You can start investing on eToro with $200, and the minimum amount you can copy a trader with is $100.
Ayondo is an easy to use, all in one copy trading platform. You can browse traders to find people you wish to copy and then drag these traders into your portfolio. I believe Ayondo is the closest competitor to etoro.
It costs a little more to start investing – £1000 to be exact. But this will allow you to copy 5 top traders to help spread the risk.
Ayondo also offers a demo account so you can signup and simulate what your investment profile will look like.
Wikifolio is a relatively new startup that lets you invest in trading strategies from professional traders. They've raised quite a bit of money from investors, so although they are only just starting out, this could be one startup to watch.
Wikifolio is a signal provider, and it looks like you'll need to register with a third part broker to use the service. Investments start with as little as $100.
Zulutrade has been around for a long time but I've found it to only provide mixed results. Zulutrade is just a signals provider. You need to register with the platform as well as with a forex broker. Once you've connected with your brokerage account, you'll be able to copy “traders” on the platform. I put “traders” in brackets because I've always found that many of these traders are bots. And although they may provide short term results, I don't believe Zulutrade is a genuine long term money making option.
Top tips for CopyTrading
Here my top tips for copy trading. Let me know in the comments if you have other tips.
Copy Trade multiple people/signals – I've never known anyone who has made consistent returns by copy trading a single person. Diversification is key. Aim to copy trade 3+ people or signals.
Copy Trading isn't the same thing as forex robots – Forex robots are scams. Sure, professional traders will use software and robots to assist with their trading, but there is no such thing as a robot that will consistently return profits. Copy Trading involves copying real people or real trading strategies.
You need to be active – Copy trading isn't a sit back and make money approach. First you need to do lots of searching and filtering to find the top traders. Next you need to constantly monitor your portfolio to ensure the traders you copy are not losing you money.
Set stop losses – Most copy trading platforms allow you to set stop losses on a copy trade. I always do this. If a traders loses around 25% of the amount i've invested in them, I'll stop copying. Sometimes, depending on the traders style I will change this to 10%-15%. This will ensure my trading account won't be wiped out.
Aim for moderate returns – Some signal providers will show returns of 20%+ annual return. It's my belief that anything higher than 20% is not sustainable. These traders will be using high leverage and high risk trading styles. I aim to only copy traders with returns around the 10-15% mark.
Starting with a Practice Account
Although Copy Trading helps reduce some of the risk associated with forex or stock tracking, there is still risk. The best way to reduce that risk is through education and practice. So I always recommend people who are just starting out with copy trading should first begin with a practice account.
Most platforms offer some type of practice account. Unfortunately signal providers don't usually have a practice account you will need to pay upfront.
My choice for the best copy trading practice account is eToro. The signals are included in the service and they offer accounts with $50,000 of virtual money to practice with.
Disclaimer: eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.