What is Copy Trading
Copy trading enables traders, experienced and new alike, to take part in the financial markets, by having their trades executed by experienced and seasoned traders with proven track records. This form of trading offers a unique solution for people who wish to trade and invest money with the aim of increasing their initial capital, however lack the time or experience to invest by themselves. For this reason brokers offer the possibility of copy trading. There are multiple platforms which offer copy trading in South Africa, and while some are manual, other are automated or semi-automated, and all offer different variations of copy trading.
Top 5 Reasons Why South Africans Copy Trade
Copy Trading in South Africa is a novel way to trade stocks, currencies, cryptocurrencies, indices, commodities, options, and other financial instruments online. The art of copy trading entails the careful selection of successful traders, and mimicking their trades online. To get started, pick a reputable broker and trading platform. Copy trading or mirror trading is essentially social trading, and this is the primary reason why new traders feel comfortable copy trading online. It’s difficult to select financial instruments to trade, especially when you have limited knowledge or understanding of the markets. Copy trading fast-tracks your learning curve by reducing all the time spent unravelling the intricacies of financial instruments, entry and exit points, stop loss/take profit orders, and selection of financial instruments to trade.
This form of trading is facilitated at AvaTrade South Africa, where you can mimic the trades of your preferred traders on the trading platform. The traders you copy are regarded as experts, and their copy trading process allows you to mimic or mirror their actions, in proportion to your budget. When they buy, your account buys. When they sell, your account sells. It is crucial to align your trading tactics and strategies with those of the expert trader you will be copying. If you are risk averse, it is disingenuous to copy trade a risk-seeking expert. By the same token, if you are risk seeking, it’s best to avoid conservative trading experts. Growth investors should eschew the actions of value investors, because their objectives differ.
Why Do South Africa Traders like to Copy Trade?
- You Can Leverage the Experience of Professionals for Personal Gain
The financial markets are inherently risky. CFDs, stocks, forex, crypto, indices, commodities, bonds, ETFs, and options can present as scary to new investors. Rather than shying away from the markets, it is possible to leverage the experience of professionals for personal gain. a beginner that uses copy trading in South Africa can benefit from the in-depth knowledge of proven trading professionals. Copy trading allows you to share in the success of experienced traders. A caveat is in order though: trades can go the other way.
- Copy Trading is a Passive Form of Investment
With copy trading or mirror trading, traders get to benefit from passive investment rather than active investment. Professional traders do the legwork, by selecting financial instruments to trade. They determine the entry points/exit points, the trading tactics and strategies. By agreeing to copy their trades, you’re effectively deferring to the pros. This passive form of investment allows you to focus on other things while your trades are being ‘managed’ by experts.
- Portfolio Diversification is Assured with Copy Trading
Many traders and investors have a rather limited focus when dabbling in the financial markets. Your interests may be restricted to cryptocurrencies, stocks, indices, forex, or commodities. When you decide to participate in copy trading, you automatically allow for portfolio diversification based on the trading decisions of the experts. If you are impressed by their trading and investment performance, you simply copy their trades and benefit from portfolio diversification.
- Much Easier to Trade the Financial Markets
While copy trading appears to be a leap of faith, by entrusting your capital into the hands of others, it’s actually an easier way to trade the financial markets. In the absence of copy trading, you would be required to endure a lengthy learning curve, possibly even an expensive one on your own. While paper trading is certainly beneficial in terms of allowing you to test out tactics and strategies, it isn’t real. Copy trading takes your capital direct to the markets, with a seasoned trader making buy and sell decisions. You can opt in or out of copy trades at any time.
- You Get to Pick the Ideal Trader to Copy
With copy trading, you have significant control over the types of traders you choose to copy. You can input specific parameters to determine which traders you want to copy. Ideally, you want to start with an expert in stocks, since stocks are far less volatile than currency pairs trading or crypto. Next, choose a trader with at least 1 year of proven experience in the financial markets. To cap it off, always opt for a relatively low-risk score, so that downside risks are mitigated.
The Rise of Copy Trading
To begin we need to establish that there are two main types of traders, those who attend seminars, attempt to compile strategies, follow all market trends, and enjoy ‘expert-trading-fees’. Then you have the other group that want to make money with as little input and effort as possible. For the latter, mirror or copy trading was created and has suited many as the perfect solution.
The growth in the past 5 years of copy trading has been exponential, for its main reason is that many traders ‘trust’ this system, and have a comforting feeling that they are not trading alone. AvaTrade offers you popular signal providers that are the best in the business. Copy trading is not only for the unexperienced, a lot of expert traders use copy trading as a means of market research, it saves time and could be part of a new strategy that could be implemented and profitable.
Advantages of Copy Trading
There are many advantages to copy trading, and as such it has earned its place amongst traders:
- Allows first time traders to familiarize themselves with the financial markets and gain confidence to trade. Enables experienced traders to take part in the market even when they are too busy, and cannot invest the valuable time and research needed in order for them to trade.
- Copy trading can be employed on various instruments, including forex trading online, stocks trading, commodities and much more.
- Creates a community of traders, beginners traders and experienced alike, who can exchange ideas, strategies and improve their trades together.
Social Trading Vs Copy Trading
Copy trading is considered a form of social trading, but the two trading methods have some differences.
Copy-trading ties up your account with another trader in that their positions are automatically replicated in your account. If they turn profits, you win; and if they lose, you lose. Copy trading is more passive because the trader does all the work you are copying, and in most cases, the process is entirely automated.
However, some platforms and copy trading apps are semi-automated, but you are only limited to deciding which trades you wish to copy. Copy trading is generally ideal for beginner traders as it allows them to trade way beyond their level of experience or expertise. Some of the significant downsides of copy trading are that it inhibits learning, and traders can suffer huge losses if they follow unsuccessful traders.
On the other hand, social trading is a broader strategy that incorporates social media into investing. The focus is on the community, with traders able to interact and share and get notified of each other’s trading activities.
Some of the features that a social trading platform may include message boards and chatrooms to share trades and talk about strategies, customizable social news feeds that update investors on the activities of their favourite traders, as well as comprehensive access to trader statistics, such as portfolio, risk score, their personal news feed, as well as fail/success ratio.
Social trading allows investors to learn and contribute to the community, and it provides access to numerous investing resources. However, it is more engaging and time-consuming than copy trading, and investors may get caught up in the ‘social media’ aspect and miss out on great opportunities in the market.
Both social trading and copy trading are useful trading strategies. It is, however, essential to select a strategy that suits your trading needs and preferences at any given time. AvaTrade offers a range of solutions, including a social trading app and copy trading platforms. It is vital to select the most comfortable one that meets your trading needs and preferences.
How to Successfully Copy Trade
There are a few steps one should take in order to successfully copy trade.
Find the Right Broker
Look no further – selecting a trusted and regulated broker, with which the funds and client’s details are completely safe, is imperative. AvaTrade ensures that the funds of our clients are kept in segregated accounts within international banks. In additions, we are a regulated broker with 5 international regulations.
Select a Suitable Account
It is time to open an account on an automated trading platform. We have the ZuluTrade as well as the DupliTrade, which are readily available to all traders that wish to take part in automated trading.
Pick your Signal Providers
After the account is active, the platform generates a list of signal providers, from which the trader can choose the best one for them.
When following these steps, a few guidelines are important to remember. During each step one can choose from a large variety – there are many brokers, multiple platforms and plenty of signal providers. It is important to narrow down the choices of each to the ones that are suitable to the trader and his needs. Subjects such as the goals the trader wants to achieve, the instruments he wishes to trade, the amount of capital he can invest, to name a few – should all be figured out before commencing to trade, and once done choosing the broker, the platform and the signal provider trading should be much easier.
Copy Trade with AvaTrade
AvaTrade offers you a variety of direct and indirect copy trading opportunities, and collaborates with leading signal providers to ensure that you can opt to follow traders from around the world.
With AvaTrade you can trade on leading platforms for copy trading:
- ZuluTrade – With a large variety of signal providers to choose from
- AvaSocial – Connect with your peers and automate your trades. Perfect for both beginners and advanced.
- Duplitrade – Easily and conveniently copy trades from multiple signal providers
The combination of AvaTrade’s global reputation with the best signal providers, gives mirror traders the security in knowing that their trades are in the safe hands of some of the best traders.
Copy Trading main FAQs
- Do I need prior trading experience to engage in copy trading?
If your plan is only to follow and copy other traders there is no experience required, although it can be helpful in analysing and selecting a good trader to copy. In reality it is often the traders with no experience who like to use copy trading. It can be a good way to begin growing an account, and if you take the time to analyse the trades being made by those you follow it can also be a very good way to learn about trading too. If you’re a new trader and are worried about losing money with copy trading you could always try it with a demo account first before funding your account.
- Is copy trading too risky?
If you take the time to identify good traders to copy you aren’t taking any more risk than when trading your own account. That is to say trading is inherently risky, and there is always the possibility that you will lose money. Also note that the past performance of a trader is no guarantee of their future performance, so even if they’ve been profitable for three years running, they could have their first losing week right after you decide to follow them. As always, never invest more than you can afford to lose.
- How can I find good traders to copy?
While it might seem tempting to copy the trader with a 300% annual return, in general these traders are taking on far too much risk and eventually will blow up. Instead look for traders who have at least 1-year trading history and a return somewhere between 10% and 30%. The trader should also be active enough that they are placing a minimum of one trade per week. This ensures that they are trying to grow their trading base rather than just locking your money in a single trade. If you want to spread out your risk you can spread out your copy trading between 2-4 different traders.