RoboForex social trading: How to copy other traders – Review & tutorial

Social trading is one of the popular forms of investment, allowing investors so they could observe the behavioral trading of both expert traders as well as peers. The key objective is following different investment strategies with the help of a mirror or copy trading.

Social trading doesn’t require avid knowledge about the functioning of financial markets. The description of it is given as lower cost, which is also regarded as a sophisticated alternative in comparison to traditional wealth managers.

In this era of the digital world, online trading replaces all other traditional methods where people must be physically present and call for orders. So they can execute trades in multiple assets with a few clicks and scrolls. However, trading requires understanding the markets and developing strategies that can help you win trades. But, it should not prevent people from at least trying their luck. So more people are getting aware of it and showing a keen interest as well. 

Warning note:

RoboForex Ltd and its affiliates do not target EU/EEA/UK clients. RoboForex Ltd and its affiliates don’t work on the territory of the USA, Canada, Japan, Australia, Iran, Russia, and other restricted countries. Please be aware that you are able to receive investment services from a third-country firm at your own exclusive initiative only, taking all the risks involved.

What is copy trading?

Copy trading is just like its name. An expert trader is chosen to follow, and then he copies trading movements. For instance, your following purchase 100 shares of a specific stock. Hence, you are also doomed to buy 100 shares of that particular stock.

 The allocation of around 5% of the portfolio to a particular stock would compel you to do the same. The real key lies in choosing a trader for following the styles as well as goals of investment that would perfectly align with yours.

For instance, the individual who invests in conservatives then you are also on your way for copying with a conservative trading bent. The ones who are growth investors are advised to refrain from following the trading activity of their value investors.

Copy-trading may appear as an easy way out of all the trading problems. But it also includes risks. A new trader must always remember that past results are not an assurance of future returns. So, it does not always mean that copying the same trading strategy by an old user will result in the same result every time.

It is now clear that a trader can copy or emulate the trades executed by other investors with this method. So, the purpose of copy trading is for the trader to hold the same positions as the investor they wish to copy. But, a trader must also note that she does not receive the layout of that strategy alone when copying the trade. Instead, blindly emulating is what takes place here. 

How to do copy trading?

Many people prefer doing copy trading on their own or via a platform. However, a copy trade platform allows sows the selection of trading activity to mimic. Moreover, it also makes a considerable investment for you. Trade takes place automatically, so the users are required very little to do.

Although you are free to choose the investor to follow, ensure there’s an abundant sum of money in your trading account for covering trade activity. The opportunity created by copy trading is for leveraging the investment, experience, and knowledge of the third person.

It also eliminates the need for analyzing the movements or trends of the stock market for deciding which stocks need to be purchased, held, or sold. Following a pro, the investor is also ideal. Sometimes some individuals focus on the generation of higher returns in the portfolio.

As a result, following them would make you repeat the same actions. Copy trading is regarded as highly passive. Choosing investments is a daunting task, and don’t leave this hard task to someone else.

Earning returns in a portfolio without the proper investment of hours to research in the market is also possible. Risk management, as well as diversification, are also taken care of since the investment directions are directed by the pro trader.

Copy-trading draws its roots to another method called mirror trading, which came into the open market in 2005. The traders focussed on copying the algorithms developed through automated trading back then. 

Initially, the developers shared their trading history, enabling others to copy their strategies. But, it resulted in forming a social trading network instead. Consequently, the traders also started to copy trades in their trading accounts. That finally resulted in a method that allows copying another trader blindly rather than the strategy alone. 

How to choose an investor?

The task of choosing an investor should be done properly considering some criteria such as:

• Track record of their investment
• Years of experience they hold in trading
• General holding time for their investments
• Number of open positions
• Preferred kinds of investments

It’s also recommended to look according to your desire with your portfolio. For instance, you might follow an individual whose main focus is on Forex, hedge funds, or commodities. 

On the other hand, if your primary goal is matching with the performance of the target market rather than competing or beating it, you are free to copy your professional investor following an index strategy.

Moreover, if you want to earn when other traders copy you instead, NAGA offers a chance. You can become a NAGA pro by getting more followers and traders who show interest in your trading. So, once you reach the NAGA pro-level, whenever someone copies your trade, you can get instant payouts.

What are the advantages of copy trading?

Flexibility is the key thing that needs to be considered. Copy Trading is ideal for both experts as well as newbies. While beginners might prefer starting without the learning curve, experts maintain their actions for generating a higher profit margin.

Some of the benefits are below:

#1 Time-saving approach

To develop an efficient and successful strategy, you need to be patient for some months or years since it takes time. Most people feel it disrupts their budget. They prefer less consumption as well automated modalities for risk-free trading on autopilot. 

While talking about copy trading, you get a consultation of an expert with a proven and time-tested strategy for success. It also eliminates the need for investing time to form new strategies.

#2 Best for beginners

Being an investor, you don’t prefer dealing with technical analysis, result tracking, chart reading as well as plotting. You need to observe that your mentor makes money out of the deal. The strategies might not lead to success every time. But experts have more experience and knowledge when it comes to predicting risks and avoiding hindrance in the long run.

#3 Bright learning opportunities 

Copy Trading is best for watching experts when they make their decisions to react to particular market moves. Every strategy is considered transparent. People are free to make some changes or track them to apply a better approach. As a result, you would be able to see your growth into an experienced professional. You can seek benefit from a set of tools for following the reputed financial experts.

What are the disadvantages of copy trading?

One of the primary risks associated with copy trading is that you are a part of some risky financial implications. The nature of the trading is full of higher risk and higher rewards.

The disadvantages of copy trading are enumerated below:

#1 Market risk

Just like any other trading, copy trading in financial markets involves an investment of some of the capital at risk. The risk of the market is often associated with means that you might end up losing some capital being your assets that have been bought by your trader. Its sales might prove to be successful.

#2 Risk of execution 

There is always considerable risk involved in any financial trading if the traded assets are illiquid. Since exiting the held positions becomes easy. It’s important to be aware of various other areas like the cost involved in the returns of copy traders and if the bid is evenly spread in published returns.

#3 Trade history 

Choosing a reliable trader for the long term is not easy as it sounds. You must complete your homework to ensure that you choose experienced traders. At times the results are too fruitful to be true, or a trader experiences a hot streak which means a downslope is near.

Copy Trading is not only limited to earning from a successful trade, but it is also beneficial from the perspective of exploring the in-depth market, customization as well as strategy testing in real life. What’s more significant is a safe approach to follow without configuration or prior manual fine-tuning.

Step by step implementation strategy, reduced risk, a team of dedicated experts as well as comprehensive learning capabilities by your side is why copy trading is regarded as a good approach for automated investment.

How profitable is copy trading? What risks are associated with it?

Copy-trading can generate higher profits if the trader is experienced enough to find a GOF and successful trader for copying. However, the most common risk that a trader is prone to face is that copy trading is subjected to market risk.

If you copy the strategies of an unsuccessful trader, you might experience failure and lose money. Moreover, there’s also a risk of liquidation if the instruments face illiquid conditions if the market is volatile. Lastly, traders might experience systematic risk if the product goes through sharp declines.

#1 Market risk

Market risk means the risk involved when the security price changes in the market. The main goal is the generation of profits from the increased asset value which is being traded. There is a higher risk that the asset might lose its value.

 Traders adopt some measures to protect themselves from market risk, which they might lose through asset allocation strategy. This means the allocation of specific funds to a particular strategy.

With the allocation of the assets to a one trade strategy, a trader might experience huge losses due to an unexpected event, and this carries the risk of wiping entire capital.

#2 Systematic risk

The emergence of market currencies is highly exposed to systematic risks. This means that your money might get locked up, and the trader won’t be able to exit from their positions. This had taken place in the past when countries were facing risks, and their capital was locked up. Although this scenario is quite rare, it should be a part of the strategy where if this situation crops up, mostly in the foreign exchange market.

#3 Liquidity risk

Liquidity risk refers to disability from existing one’s positions at an expected level. The risk management of a trading strategy method should constitute a historical reference so the traders can see the maximum historical drawdown of the copied trader.

The peak decline is depicted by the maximum drawdown at the time of planning the strategy. This is significant since it allows traders to see the maximum amount, which they do not mind losing at any time if a particular strategy fails.

For instance, a copy trader might experience a 20% maximum drawdown. This means there is a risk of losing 20% at any given point if you follow your copy trader.

Conclusion

Social trading or copy trading is a beneficial tool that we can use in trading methods. It can help new traders progress in their journey, give new ideas, and minimize trading mishaps.

The concept behind copy trading is simple and lucid; it gives the trader an idea of which strategies would work and which may not. The new traders also get to use the trading community as their support system and as a place to learn ideas and discuss strategies with others. 

However, it is often confused with social trading. But, there are subtle differences between social and copy trading. Though it appears that they both convey the same meaning, differentiating them is needful for their proper use. This article would clarify all the differences and get a clear image of the two after understanding them one by one.

FAQ – The most asked questions about RoboForex social trading :

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Last Updated on July 26, 2023 by Andre Witzel