Copy Trading allows you to replicate the trades of experienced experts in the financial market, thereby easily making a profit. However, many people wonder, is Copy Trading a scam and how is it used? So if you’re interested, follow this article to find out what is Copy Trade? Opportunities and risks when participating in Copy Trade.
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What is Copy Trade?
What is Copy Trade?
Copy Trade is a form of copying someone else’s trades. Specifically, you will copy the investment portfolio of a certain expert in the market (usually professional investors with a reputation and years of experience), without needing any technical analysis. Consequently, any action of the investor that you copy, such as opening orders, cutting losses, taking profits, etc., will be similarly executed on your account at a % ratio between the two accounts.
For example: Investor A is an experienced expert with a total account of 100,000 USD and trades with a profit of 5,000 USD.
Investor B copies A with similar capital: 100,000 USD and profits 5,000 USD.
Investor C copies A but with less capital, only about 10,000 USD, then the trading profit at that time is only 500 USD.
Entities Participating in Copy Trading Activities
To execute a Copy Trade, it’s necessary to ensure the participation of 3 important entities:
- Investor (Copier – Follower): The person who will search for professional Masters to copy. For each successful trade and profit, you will have to pay a fee to the Master copied.
- Pro Trader/ Master: The person directly opening orders, executing trades. They will receive commissions from profitable trades, from those who have copied their orders. They also receive additional Commission fees from the exchange.
- Trading Platform: Platforms that offer the Copy Trading feature such as Forex platforms, stock exchanges, etc.
Is Copy Trade a Scam?
Besides the topic What is Copy Trade, many people wonder is Copy Trading a scam? As shared above, Copy Trading is just a form of copying the trades of professional investors. However, with the development of financial, Crypto, Forex, stock markets, etc., many scammers have exploited this form of Copy Trading to deceive new traders in the market, by appealing to their greed with attractive invitations, promising 1 – 5%/day without having to do anything. In reality, when you deposit money or ask them to open an account for you, they will use your capital to execute trades to mine Commission, earning substantial commissions. This can cause your assets to dwindle and even lose everything. Therefore, when you engage in Copy Trading, you must remember these things:
- Choose professional investors with a consistent monthly profit margin. Instead of selecting traders with volatile income, high one month, losses the next.
- Accounts with a higher winning percentage than losses.
- Diversify the investment portfolio to minimize risks.
- Traders with at least 1 year of practical trading experience. These people have the ability to control emotions well, have real combat experience in the market, to predict future trends.
- A large number of followers and many positive responses. This shows that the trader has a reputation and is respected in the market.
Copy Trading allows you to replicate the trades of experienced experts in the financial market, thereby making profits easily. However, many people wonder, is Copy Trading a scam and how to use it? So, if you’re interested, follow this article to understand what is Copy Trade? The opportunities and risks when participating in Copy Trading.
The Truth About COPY Trading You May Not Know
First: You may not be able to COPY TRADE for a long time
You will never know who you are copying trades from. They may provide a short biography of themselves, how they trade, etc.
But how can you trust their trading strategy if you have not verified it yourself?
Because once the portfolio drops/incurs losses (and it surely will happen), you will start having thoughts like: “What’s happening?”, “Does Copy Trading work”, “Have I been scammed”, “Should I continue Copy Trading after 5 consecutive losses?”
These questions are unanswerable because you did not trade and develop the trading strategy yourself. Instead, it was copied from another trader and you do not understand what is happening.
Second: Be careful with costs and transaction fees
Copy Trading is also a business. Therefore, if you do not calculate the fees, you will end up paying more for the spread, swap fees, funding rate fees…
For example: In Forex, the spread for EUR / USD is 1 pip. But on Forex’s Copy Trading platform, you may pay more, from 2 to 3 pips.
Therefore, if you decide to Copy Trade, it’s best to follow traders who do not trade too much, so that the spread does not significantly affect your profit.
Additionally, the Spread fee is not your only cost as you still need to consider the overnight fee – Swap, funding rate fees… if you hold a position for more than one day.
Third: Be careful with potential conflicts of interest
Suppose you are a Pro Trader (the one being copied), you will be paid more as your number of followers increases (because you have a larger amount of assets managed).
So, the question is: How do you increase your number of followers?
One technique is to apply a high winning rate trading system (For example setting a Stop Loss at 500 pips and a profit target of 5 pips). Clearly, with such a trading method, the winning rate is extremely high (but profits are small), and the owner’s capital also has to be high over a long period.
However, just one loss will wipe out all the previous profits (even going into the owner’s capital).
Then, these Pro Traders will earn profits from “fees”, while the ones who suffer – are Copy Traders like us.
*** Of course, we are not saying that all the Masters (being copied) are bad, but you need to be cautious if the winning rate is too high, or the “owner’s capital” curve is too beautiful ***
Advantages – Disadvantages of Participating in Copy Trading
What are the advantages of Copy Trading?
Overall, the form of Copy Trading will help you earn profits, based on the investment strategy, capital allocation, and experience of the Masters. Specifically, this form will bring the following benefits:
Copy Trading saves you time: If trading takes up too much time to monitor, understand market news, price fluctuations, etc., then when you perform Copy Trading, you don’t need to worry about the market anymore. This is because the Masters have taken care of everything.
No need for knowledge: You can still have successful transactions, thanks to copying the positions of professional investors.
No need for experience: Instead of spending 1 – 4 years to gain valuable experience, now you can enjoy those experiences by following the orders of a Master.
What is Copy Trading and what are its benefits? This method helps you allocate capital and optimize your investment portfolio effectively. From there, you can have a safe and stable income.
Limit the risks due to not being able to control emotions. Because then, you have handed over the investment decision-making power to the Masters.
Although it is Copy Trading, you can still learn the trading strategies of the Masters, effective capital allocation, etc., to invest better in the future.
What are the disadvantages of Copy Trade?
In addition to the benefits of participating in Copy Trading, it is impossible to avoid unwanted risks. Specifically, like:
Facing market risks: Whether you Copy Trade or trade yourself, you still have to face market price fluctuations. Especially when you perform Copy Trading, which is passive, if the Master does not adapt to the fluctuations, the risk of loss is very high.
Risks when choosing a Master: Choosing a Master with a too short trading history, although with a high winning rate, may not necessarily be good. It’s possible that at that time, they entered when the market was Uptrend.
Besides, putting all your capital into participating in Copy Trading is also very dangerous. Even the best traders cannot win 100% of the time.
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Through the above article, have you grasped what is Copy Trade and the benefits of participating in Copy Trading? However, when copying the trades of any Master, you should also be prepared for possible risks. Because experienced people only reduce the risk ratio lower than inexperienced ones, but no one can win the market 100%.