1. Why is Copy Trading rapidly growing?
1.1. What is Copy Trading?
Copy Trading is an investment technology that allows for direct contact between professional traders and investors that want someone to manage their money with profit and efficiency. Its as simple as choosing a trader that you believe will be profitable and your capital will copy every operation the trader makes.
Copy Trading platforms track all of the trader’s operations and create a summary of gains over the years of trading. As an investor you can copy as many traders as you desire, by doing so, you automatically copy the trader’s operations in your account. As well as, it does not limit your ability to make trades on your own.
1.2. Advantages over other investments?
Until recently the only way a professional could manage your account was through an investment fund. The issue with funds is they tend to invest long term, charge high commissions, offer low to average returns. Not to mention most funds require a minimum amount of capital to invest.
If you want better returns, you must become an educated and experienced trader which takes multiple years. Copy Trading allows you to copy professional traders that are educated and have years of experience.
Being able to win in a growing or falling market is one of the leading advantages of Copy Trading, you can copy traders that will constantly be adapting to shifts in the market to create the best possible return.
The best part, it’s free! The majority of Copy Trading platforms do not charge extra commission, only the broker commission must be paid, the same as any other investment.
1.3. Who uses Copy Trading?
Copy Trading is useful for any investor.
Novice Investors (500€ – 10.000€): If you use the Copy Trading platform correctly higher returns and diversification amongst many professional traders will limit your risk. The adaptation by traders depending on the market almost guarantees results.
Intermediate Investor (10.000 – 100.000€): Can risk only 5% or 10% of your capital and still obtain betters returns than the market. The portfolio is typically comprised of dozens of traders that manage a couple of hundred Euros respectively. Allowing for complete diversification and risk of loss can become virtually non-existent.
Professional Investor (>100.000€): Copy Trading allows you to diversify a part of their portfolio while gaining better return and reducing overall portfolio risk. A professional investor can assign a small portion of capital to each trader once again creating a perfect diversification.
1.4. Returns available through Copy Trading?
If the account is correctly diversified through multiple prestigious professional investors, with a similar portion of capital allocated to each, the returns of Copy Trading can be significant. Many of the traders that are available to copy have a return between 20% to 80% in one year.
Examples of investors that make the most returns can be found here
If you would rather see the returns of some traders, they can be found here
2. What is the best Copy Trading platform?
2.1. Comparing different Copy Trading platforms
To view a complete comparison we recommend visiting our Copy Trading platforms comparison.
2.2. How to know which platform is best for you
The best way to find out is using our Copy Trading Guru. Through certain question and criteria we find the platform that will lead you to the best returns.
3. The basics before opening a Demo Account
3.1. What are the returns of traders available to copy?
You can view trader returns here. Many of them can double your account within months, but it is essential to know the performance is not the only factor to consider when choosing a trader. This will be discussed in further detail in the next point.
Many users ask us how it is possible for some trader to achieve such high returns. There are many aspects and reasons that will be further discussed later.
- Short-term Trading. We are used to maintaining open index positions for years where we see our account grow and decline often averaging between 5 to 8 percent a year. However, professional traders trade much more often, opening and closing operations on the same day achieving daily returns of 0.5%. This may seem small, but the year has 200 trading days, so 200 days times .5% on average gives us a yield of 100%.
- Buying and Selling. The traders buy when the market is rising and sell when the market is falling. This can seem obvious, but many investment funds and fundamental traders just buy and hold. Thus, not being able to take advantage of swings in the market and opportune times to buy or sell to make a significant profit.
- Maximum adaptation to change. Being able to buy and sell frequently allows traders to adapt their investments when unpredictable news occurs. Investment funds lack this flexibility and only alter investments in the longterm when it might be too late.
- Controlled Risks. The traders control and limit their risk to avoid significant losses. This allows them to survive or even strive in any market situation. This is very useful for set and forget investors, ensuring that a professional trader is constantly monitoring the security of your investment.
3.2. How do I know which traders to copy?
As we previously discussed it is crucial to copy trader with high returns but that is not the only decisive criteria. In AllCopyTrading we are going to explain 2 different strategies to find traders.
- Use a Copy Master. These websites analyze all the traders on one platform and recommend the best ones using Mathematical algorithms and Data Scraping. The most important and best is www.zulu4me.com which examines all the active traders on ZuluTrade. Using a Copy Master is the best recommendation because you save time and guarantees you know the best traders using data.
- Analyze traders by yourself. If you are someone who would rather analyze the traders on your own or simply want to be well informed, in AllCopyTrading we describe the essential criteria according to the experts:
Would you give your money to an amateur? The answer is obvious, that is why we recommend copying traders with at least one year of trading history. That way you can see how the trader has performed in a rising, falling, or volatile market. As well as, having a profitable three month period can be lucky, but a year or more of returns in multiple markets and situations is rarely luck.
A trader with high yields due to one or two trades should be avoided. It is not guaranteed that profit from these trades will be repeated ever and for now it is risky to trust in these traders. The returns should be consistent every month, and the trades should be similar in strategy and style.
It is crucial to have confidence in the trader that we copy and of course in their trading strategy. Obviously, we cannot analyze every strategy; for this reason, a Copy Master website is beneficial. Copy Masters such as Zulu4me.com uses Data scraping and mathematical algorithms to analyze the strategy and see how reliable it is. Or you can try to understand every traders strategy one by one, but why when Zulu4me.com has already done that for you with every active trader.
Other crucial ratios
User Opinion. A lot of platforms allow you to view the opinion of other users on a trader and their value. Knowing the opinion of users that have been copying a trader for months is obviously a good reference.
The number of closed trades by a trader is also a parameter to take into account when choosing an active trader. Copying a trader that almost never trades will further you from high return by losing compounding interest.
The number of currencies or assets that the trader operates in is vital to be adequately diversified. It is good to follow ten traders for diversity but not if they all operate in euro-dollar. It is vital to have traders in various markets to achieve a diversified portfolio.
Finally, commissions are another thing to consider. Even though many Copy Trading platforms are free, some are not and can reduce your returns. We recommend using our Copy Trading Guru which will show you the best platform for you.
3.3. How many traders should I copy?
There is no exact number of traders to copy, but the experts consider a portfolio of 10 traders using different strategies to have fundamental diversification. This, of course, varies on the amount of capital you have available and your risk tolerance.
The best diversification would be having between 20 and 25 traders. After this amount, any traders added will not impact diversification significantly.
3.4. What are the risks? Can they be eliminated?
Any investment involves risks. Risks can never be eliminated but they can be mitigated and controlled.
Some of the tools to limit risk that we help you implement are:
– Limit capital assigned to each trader. The losses of the trader cannot exceed the allocated amount of capital.
– Limiting the number of concurrent trades. Avoiding a trader that tends to trail off their usual strategy; might make us exceed our limits due to an impulsive trade.
– Stop loss on every trade. This allows you to decide what the amount of money you are willing to lose before terminating the trade. Once your investment reaches your stop loss number, it will automatically trigger a sale. Especially important if you’re a set and forget kind of investor.
– Controlling markets. Some traders have great profit in specific markets they trade in, yet underperform or lose in other markets. In Zulu4me they detect traders trading history and inform you on the best way to invest according to their examination of the trader.
– Balance of risk among traders. Another issue is that some traders have many operations open, thus leading to higher risk. We will see how to balance the value of each trader to solve this issue.