The statistics for forex traders across the globe, with up to 70% of investors active in this market known to lose money consistently over time.
Given this, it’s only natural that novice investors should look to seek out viable trading strategies that can help them become profitable, with a wide number to choose from depending on your outlook and appetite for risk.
Copy trading is one such strategy, and one that is becoming increasingly popular. But what exactly does this entail, and why should you care as a trader?
What is Copy Trading and How Does it Work?
In simple terms, copy trading refers to the process of replicating the orders and strategies of successful investors within the myfxbook section of your MT4 account.
More specifically, this facility allows you to analyse and review the performance of numerous trading systems, which have ideally been created by successful traders and delivered demonstrably beneficial results over time.
This involves a diverse choice of available trading systems, so you can select an option that best suits your own unique style and strategy.
In terms of functionality, the process is relatively simple, as you initially start simply by following a particular trader or system. Once confirmed, their trades will be replicated directly in your account in real-time, with successful ones yielding a profit for both participants where relevant.
This automated copy trading system allows for a seamless and accurate method of operation, while enabling you to alter the available ‘multiplier’ value which dictates your risk ratio and how this relates to the individual or system that you’ve copied.
Of course, reducing the risk-reward ratio will also minimise returns in the event of a successful trade, but you can also ramp this up to pursue more generous returns as and when required.
So, is Copy Trading Profitable?
As we can, copy trading connects you to the best and most successful trading systems in real-time.
This is highly beneficial from a trading perspective, especially for new and inexperienced investors who are looking to gain a foothold in their chosen market.
The question that remains, however, is whether copy trading is considered to be profitable? Unsurprisingly, the answer depends almost entirely on who you copy and the risk-reward balance that you pursue, although you’ll also have to factor in market risk with this type of strategy.
Of course, you’ll also face liquidity risk if the instruments in question all experience illiquid conditions during periods of volatility, and this issue can be exacerbated if you copy traders blindly without a genuine understanding of the market in question.
So, we’d recommend learning about a particular market and its nuances before selecting or following a copy trade, as this can help you to make more informed decisions and mitigate any prevailing market risk.
