What is copy trading and how does it work?

Before talking about copy trading, a premise must be made. The estimate of individual traders who lose money in the financial markets is - in the most optimistic data - between 70 and 80%. It’s a figure that makes you think, right?

But what would happen if you could automatically replicate the operations of the most experienced and successful traders? This is where copy trading comes into play, an innovative solution that is transforming the way in which beginners (and not only) approach online trading.

Copy trading, in fact, allows you to copy the strategies of professional traders in real time, offering a bridge between the experience of veterans and those taking their first steps in the world of investments. You don’t need to be an expert in technical analysis or spend hours studying the markets.

But does copy trading really work? In this complete guide, we will explore what this way of operating is, how it works and what advantages it can offer to those who start, discovering together the most effective strategies for selecting traders to follow and the tools needed to start off on the right foot.

What is copy trading and how it works

Let’s talk about how this strategy has changed the landscape of online investments. Copy trading is a technique that allows you to automatically copy the financial operations carried out by other expert traders.

The mechanism is simpler than you might think: when an expert trader carries out an operation, it is automatically replicated on our account, in proportion to the capital invested. It is important to note that, unlike other forms of investment, we always maintain full control of our capital.

The main markets on which we can do copy trading include:

• Forex (the original market of copy trading);
• actions;
• indici;
• criptovalute.

Closely related to copy trading is also social trading. But they are not the same thing. While copy trading focuses on automatically replicating trades, social trading goes further: it is like a social network for investors where we can interact, share strategies and compare ideas. In social trading, users can share their "signals" or suggestions, creating a real community of traders.

The Role of Expert Traders and Followers

Expert Traders, also called "signal providers", play a fundamental role. As followers, we can analyze their past performance through detailed statistics provided by the platforms. Trades are processed in fractions of a second, ensuring that execution prices are virtually identical for both the expert and the copier.

Interestingly, this system works as an investment in the person rather than in the financial instruments themselves. However, we always maintain the flexibility to actively manage our portfolio, being able to decide when to deviate from the choices of the trader we are following.

What to Know Before Starting Copy Trading

If we want to start our journey in copy trading, we should first make some important choices that will impact our eventual future success.

Choosing the Right Platform
Selecting the platform is crucial to the success of investments. Among the main criteria to consider are:

• regulation and security;
• variety of traders to copy;
• transparency in trader statistics;
• quality of customer service;
• risk management tools.

From this point of view, it must be said that eToro emerges as the progenitor platform, as well as one of the most reliable on the market. It is no coincidence that this was the first to include the copy trading mode among its options and provide a way to operate differently on the Forex market. Other popular options include ZuluTrade and Darwinex, each with its own distinctive features.

Account creation and configuration
To get started, we will only need to provide:

• a valid ID;
• the proof of residence (utility bill or bank statement).
  Most platforms offer a free demo account to practice. For example, eToro provides 100,000€ virtual to test strategies without risk.

Setting the initial budget
The initial budget varies depending on the platform chosen. Always taking eToro as an example, here you can start investing with a minimum of around €200.

It is essential to remember that copy trading, despite its accessibility, always involves risks. For this reason, it is advisable to start with small amounts and gradually increase the investment as we become familiar with the platform.

How to do copy trading as a beginner?

Choosing the right traders to copy is essential for success in copy trading. To maximize the chances of success, it is necessary to respect certain criteria and a well-structured strategy.

For example, how to select the most reliable traders? Here are some key elements.

• Consistent performance over the long term instead of sporadic peaks.
• Risk profile aligned with our objectives.
• Transparency in communication of strategies.
• Proven track record over a fairly long period (at least 12 months, as a rule).
• Return over 10% per year.
• Verify that the trader is active with at least one trade per week.

Risk management and diversification

Risk management is crucial in copy trading. Common advice for beginners is always to follow the lines of "prudence", with a limited investment, gradually increasing it as you become familiar with the system. To optimize the portfolio, it is advisable to distribute investments across 2-4 different traders, avoiding concentrating all the capital on a single trader.

Performance monitoring

Constant monitoring is essential for success in copy trading. We must pay attention to several key indicators.

• [ROI (Return on Investment): to evaluate the percentage of profit or loss.
• Win Rate: to measure the percentage of profitable trades.
• Drawdown: to monitor the maximum losses of the portfolio.

It should be remembered that, although copy trading is largely automated, we must still maintain an active role in monitoring and adjusting our strategies. This allows us to react promptly to significant changes in the performance of the traders we follow.

The best copy trading platforms

After having examined everything there is to know, it is time to explore the most reliable platforms to start the journey in copy trading. The analysis focuses on the platforms that offer the best balance between security, functionality and accessibility.

• eToro stands out as an industry leader, with over 13 million active users. The platform offers a free demo account with €100,000 virtual money to practice. The minimum investment to start copying traders is €190.84, making it accessible even for those taking their first steps.

• ZuluTrade, another pioneer of copy trading, is characterized by its versatility. The platform requires a minimum deposit of €95.42 and offers the possibility of connecting your trading account with different brokers, ensuring greater flexibility in your trading choices.

• NAGA, a German platform regulated by CySEC and BaFin, offers an innovative approach with an initial deposit of just €47.71. A distinctive feature is the ability to copy not only CFD positions but also real stocks.

• Darwinex offers one of the most advanced systems on the market, although it requires a higher minimum deposit of 477,11€. The platform is particularly appreciated for its innovative approach that allows traders to create automated strategies.

Original article published on Money.it Italy. Original title: Cos’è e come funziona il copy trading