Copy trading is a trading method that automatically replicates the trades of a chosen trader in your own account. The size of each copied trade is typically adjusted based on how much capital you allocate.
Instead of researching and executing every trade yourself, you can copy an experienced trader's activity automatically. This can reduce the time and effort required to trade, but it does not eliminate risk. If the trader you follow loses money, your account can lose money too.
How Does Copy Trading Work?
The basic copy trading process typically involves three steps:
Choose a lead trader. Review factors such as historical PnL, win rate, drawdown, trading frequency, and risk level before selecting a trader to follow.
Set your allocation and risk limits. Decide how much capital to allocate and configure available risk-management settings, such as stop-loss limits.
Trades are copied automatically. When the lead trader opens, modifies, or closes a position, the same trade is automatically replicated in your account according to your allocation.
The exact features and risk controls available depend on the copy trading platform.
Copy Trading vs. Social Trading vs. Mirror Trading
Although these terms are sometimes used interchangeably, they describe different approaches to following other traders or strategies:
Copy trading: Automatically replicates the trades of a specific trader in your own account.
Social trading: Lets you follow, discuss, and learn from other traders, while generally leaving the decision and execution to you.
Mirror trading: Automatically follows a predefined trading strategy or algorithm rather than necessarily copying an individual trader.
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