Allocating your funds to stocks and trading is a good way to diversify your portfolio. Trading is a wonderful way to invest your money to achieve your future as well as short-term financial aims. While the world of trading is vast, there is a method used by traders known as copy trading. In this article, we’ll break down copy trading for you, what it is and how it works. Read here more details in wikipedia.

What is copy trading?

Copy trading allows amateur traders to copy the trades of the more seasoned players. To put it in the most basic terms, you literally copy someone else’s work but in a perfectly legal way. Let’s look at it like a classroom learning experience. For better results, you observe and follow what the person with the good grades does. They know what they’re doing so you can bank on them instead of proceeding with some half-baked knowledge.

The key reason why you should consider copy trading is that you can earn the same amount of profit that a successful investor makes. It’s basically an investment with minimal risks. However, before you choose to copy trade make sure you understand how the process works.

Steps to copy trading

1. The first step is to create an account on a trustworthy stock and trading platform. Typically, most trading platforms give you the option to follow fellow traders. There are multiple criterias to choose the right trader for you. Say for instance, you want to choose a trader who earns more profit and demonstrates a consistent trading pattern.

2. The next step is to pick the amount you want to allocate and are ready to take that financial risk. The basic idea is to not put all your eggs in a basket. Begin with a tiny percentage of your disposable income and know that there is always a degree of risk involved in trading. You may not get all your money back.

3. The following step is to just watch the trades move. There are several trading platforms that copy trade the stocks you pick automatically and sync it with the trades of the investors you're following. But there is a manual way to copy trade by observing how your chosen peers trade.

The secret for successful trading is to be aware. You can do this by being a part of many trading groups online where people discuss the stocks to buy, where to put the money etc. Yet another alternative is to use an automated trading platform. You check out a number of softwares that can help you make your trades in a stress-free way once you’ve bought the stocks.

Should beginners use copy trading:

• Learning curve:

Be it stocks, forex or cryptocurrency, trading can be very taxing. The learning curve is steep and can throw off amateur traders. Copy trading is a great way to learn because you copy trades of senior traders and are able to see the trades perform in real-time. It helps you assess the trading charts better and when you can buy or sell when the market conditions are apt.

• Time-saving: Trading is time consuming. Don’t fall for the advertisements that tell you that it is possible to earn more in no time. Professional traders spend hours analysing charts and following news to take the right calls. With copy trading you can delegate the time taking bits to others. Even experienced traders can reap benefits of copy trading and turn it into a very lucrative source of passive second income.

• Portfolio diversification:

You can diversify your portfolio by allocating your funds to a number of different assets and securities. This also brings down the overall risk associated with your portfolio. But now take into consideration what happens when you put all your funds in just one investment. As long as the stock does well, you’re safe. You can also copy trades of multiple traders at once. By doing this, you will essentially spread out the risk and use small sums of money for different trades. It is one of the best risk management strategies that one should consider.

• Source of passive income:

Copy trading is a great way to earn profit without putting in a lot of effort. Copy traders typically like to spend their time looking for traders who do well and work their way around different trading strategies. The interesting part about copy trading is that you earn money even when you’re asleep! When you mimic trades of over 100 traders at once, you could be making multiple deals in a go. The only work you should be doing with due diligence is checking your account regularly and seeing that there are no dramatic changes. Thus, it becomes a great way to earn a passive income.

Pros and cons

Copy trading refers to a type of investment that may not suit everyone. Every person has different financial goals and requirements. Hence it is necessary to understand the advantages and the disadvantages of copy trading.

Pros

• You can make money steadily

• If you are an amateur, you can get a great start

• You get to network with expert traders

• You get to diversify your funds and thus have a source of passive income.

Cons

• It can be tricky to look for the right copy trading platform. Some platforms may require you to pay for the software.

• You need to be able to be sure that the trader is a legitimate one. In today’s social media frenzied world, a smart trader is the one who goes into the details and learns more about the trader rather than just skimming through the profile picture.

• If you're working with automated software, ensure that you are keeping a track of your losses and exiting the trades at the right time before it’s too late.
  
  

We hope by now, you have understood how copy trading works and if you can also make use of it for your investments.

Bottom line

Copy trading is just one of the many ways to turn your investment strategy into a default set up. It eliminates guesswork and you make informed decisions about your investments. But, it might work well for some investors while it may not suit some others. You should thus be aware of both the risks and reward before using copy trading as a trading strategy. Visit here YouTube videos.

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