How does copy trading work
Copy or ‘Social’ Trading lets you take actions similar to the traders you follow, opening positions, closing them, or assigning Stop Loss orders. Change who you follow as conditions change or your strategy evolves.
What is copy trading?
Copy trading systems allow traders to automatically copy positions that have been opened and managed by highly-ranked traders they follow.
The Concept of Copy Trading
Copy trading is sometimes confused with social trading. They have similar roots, but copy trading combines elements of social trading with the capabilities of automated trading, merging practices from both to create something new.
While there are similarities between the two, there is also a major difference: copy trading does not involve the human interaction that takes place on social trading platforms.
In basic terms, Follower traders copy the approach of Copied Traders, and see trades made by more experienced or senior traders they follow replicated on their own accounts.
What makes copy trading different from automated trading robots? When using automated robots, you simply pay a provider to implement the strategies or systems they are selling on your platforms. You don’t have a choice: what they offer is what you get.
With copy trading, you have a portal which features hundreds of traders’ systems and trading strategies. You have the power of choice.
Who are the Major Players in the Copy Trading Ecosystem?
The copy trading ecosystem is dominated by the following players:
The Copied Traders: A copy trading ecosystem relies heavily on the presence of experienced and profitable traders known as the Copied Traders. They are basically the senior, highly-skilled traders featured on trading Leaderboards. In order to qualify as a Copied Trader, you must have an extensive history (at least 1 year) of profitable trading. Lately, some copy trade platforms have started to implement a Risk Score system, which determines how risky a Copied Trader’s system will be to Followers. Copied Traders with systems deemed too risky are deleted from the Leaderboard.
The Copy Trade Platform Providers: These are the companies which provide the copy trade portals that enable Leaders and Followers to interact. These companies can either be third-party providers or currency brokers like Hantec Markets. Third party providers work with a group of brokers to provide this service.
The Followers: The Followers are the traders who copy the trades generated by the Copied Traders. The Followers are given the freedom to choose whatever trader or system to copy which suits their objectives. However, it is essential that Followers understand the parameters that are used in selecting traders to follow.
How the Copy Trade System in Currency Markets Works
Copy trading systems in currency markets usually don’t feature pending orders; they feature market orders (Buy/Sell). Trades are copied onto the accounts of the Followers using an automated process. The system is responsible for copying all trade parameters (including the Stop Loss and Trade Profit). The integrity of the process depends on sound programming techniques and maintenance of the platforms.
The copy trading portal is programmed with a front-end and a back-end. The Copied Traders, Followers, and Copy Trade Platform Administrators all have different views of the control panel, with different levels of permissions to access their interfaces.
Followers will be able to see a list of the Copied Traders they are following and adjust settings such as capital allocation, risk management settings, etc.
Administrators have the ability to manage the accessibility of the Copied Traders and Followers, as well as other system settings.
The front end is visible to both Copied Traders and Followers. It provides Copied Traders with the opportunity to display their profile and their account information, so that their performance stats can be compiled for viewing by Followers.
The front-end also gives Copied Traders information on how many Followers are copying their trades, and how much money they’ve earned from this activity. Followers can use front-end tools to search for Leaders in the Copied Traders rankings and evaluate their statistics. Settings like capital allocated can also be adjusted here.
The back-end of copy trade software operates as the engine room of the process. Trades from Copied Traders are automatically matched to their Followers using the back end’s computing capabilities.
To begin copy trading, you need to open a trading account and sign-up with a copy trading platform.
As a Follower, you start by scanning the profiles of Copied Traders listed on the Leaderboard. Then you pick a trader whose trades you want to copy automatically.
For the sake of the following examples we’ll call you John Trader. Your copied trader we’ll call Brad Leader.
Brad Leader is about to execute a buy trade on the EUR/USD at price of 1.1123, with Stop Loss (SL) at 1.1083 and Take Profit (TP) at 1.1183.
As soon as Brad Leader executes these trade, the information is fed into the copy trade portal. A control panel displays all the trade parameters defined by Brad Leader in his currency trade. These are then fed into the system and pushed out to the trading accounts of Followers like John Trader (you),who follow Brad Leader in the system.
John Trader sees the trade being implemented automatically via his trading account, with all parameters intact.