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Copy trading offers a relatively new string to an investors bow. Derived from Social Trading platforms like eToro and Ayondo, it gives investors the ability to replicate the trades of experienced traders, within a budget that suits. So how does social trading work? We’ll attempt to explain it for you.

First of all, you’ll need to understand the concept of social trading.

So, what is Social Trading?

Well, it’s a completely transparent way of seeing what other investors are trading. The financial markets are in effect, a product of the wisdom of the crowd. Social trading means you get to see what the most popular trades are, when they are being made and how much is being traded. It’s a way to channel the sentiment of a social community. Of course, this transparency and the scale of the community is limited to the platform you choose.

What does this mean? Simple. You get to see what everyone else in your social trading community is doing. You can discuss the markets with experienced traders, do your own thing or follow the masses.

For investors that are new to trading, it’s an opportunity to learn. For investors that don’t want to trade but want access to the CFD markets for short term transactions, there’s Copy Trading,

Right, now I’ve explained the idea behind social trading – I’ll move on to Copy Trading

Copy Trading

OK. So, if you are like me and don’t have much success trading the financial markets, nor the confidence to follow your convictions, help is at hand.

It comes in the form of Copy Trading. The concept is actually, fairly straightforward.

Once you open an account with your preferred social trading platform, you’ll be able to find all the transparency I mentioned above. Crucially, you’ll get to meet other traders. You’ll see what markets they are trading, where they are from and what kind of risk levels their trading behaviour merits.

This is where the copy trading comes in. You can search for traders from across the world who match your trading criteria and see what kind of trader following they have built. Having identified like-minded traders, you can follow them and watch their trades in real-time.

So, it turns out you find a trader that trades the markets that interest you with the skill and guile of a ninja. That’s how you would trade them right?

Here’s the good news – you can copy them. Every transaction they make.

You’ll need to assign a budget to that trader and that’s it, you’re off and running. Your budget doesn’t have to match that of the trader you are copying. You can choose your own budget, whether that’s larger or smaller, and your platform should replicate each trade proportionately.

If you don’t like a trade that your trader has made, that’s no problem. You can stop the trade from taking place on your account. Ultimately, you have control.

What’s in it for the trader you are copying I hear you cry? What is their incentive to let me in on their ninja trades? Well, it all boils down to rewards. A trader that is consistently doing well and building a large following will get paid a monthly fee for trading on the platform, on top of any profits they make from their own trades. A win – win eh?

eToro have provided us with this nice widget. The search filter will enable you to identify traders that meet your criteria. Feel free to have a play around with it.

That’s it!

I hope I’ve managed to shed some light on Copy Trading for you. If you prefer visuals rather than copy – like me – you’ll probably benefit from this short explanation video from eToro.

 

Happy Trading!

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Michael Morton

Michael has worked within the Financial Industry for more than 20 years. Starting out as a financial analyst, he has extensive experience working with fund management groups and brokerages.

With an interest in Stocks and Shares, Funds, ETFs and Commodities, his investment focus is medium to long term gains, with the objective of financial security on retirement, and building wealth for his young children for their adult life. His broker of choice is Hargreaves Lansdown.

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