In recent years, copy trading has made its way into the investment habits of many traders, becoming a “faithful” ally of all those who are looking for a profit to be achieved in the greatest possible comfort. But is it really like that? Is copy trading really to be trusted? And is it really worth putting the fate of your financial portfolio (or, rather, part of it) in the hands of another trader?
Copy trading: It is a good opportunity, but not the panacea for all evils
The first thing we want to share with all of you is also the most important: copy trading is certainly a good opportunity to be able to diversify your investments through a sort of “delegated” management, but it is certainly not the panacea for all ills, nor the secret key that will lead you to a life of success and unbridled ease.
To be aware of this, it is sufficient to remember that in copy trading an investor (generally a neophyte or in any case not particularly capable of developing his own independent market strategy) chooses to “copy” the actions and positions undertaken by a “guru” trader. In other words, a part of an investor’s portfolio will mirror what happens in the portfolio of the investor being followed.
So far, no problems with interpretation. Ultimately, it is as if the investor who “follows” invested not in one or more financial instruments, but in one or more people. However, problems arise shortly after: considering what has just been mentioned to be valid, the success of the following investor can only depend on the goodness of the followed investor. But how to find a good trader guru to copy? That’s probably not too different from how to find the best online forex broker. At first glance, it looks simple but in practice, it can be quite complicated.
How to find your best trader to copy
Unfortunately for you, identifying a good trader to copy is not at all as simple as it might appear, and taking a look will only be a valid starting point for your trading project. Contrary to what many novice traders do, we advise you not to give in to the real temptation of choosing the first trader guru you find in the lists of the most successful investors. We know very well that the ambition to complete your investment projects is very strong, and that reading that a trader has achieved stratospheric gains over the last six months could lead you to place the utmost trust in him.
However, it seems clear that if everything were that simple, copy trading would really be a simple shortcut to a life of great satisfaction. In reality, choosing the first trader in the best-performing ranking does not always turn out to be the right option for you. And the reasons that support this belief – bear in mind – are numerous. Think, for example, of the fact that those super performances will hardly be repeatable, and that therefore a good past result is absolutely no guarantee of good future results. Furthermore, we should understand how those performances were generated: are they the result of a few operations closed with a huge profit, compared to many operations at a loss? Are they the elaborate result of a strategy that is compatible with your risk appetite?
On the sidelines of the above, we want to leave you with a small – but important – piece of advice. Before investing in copy trading, try to put the same commitment into the analysis of people that you could put into the analysis of the financial instruments that you could purchase as an alternative to this useful evolution of social trading. That includes choosing a mobile copy trading app that accommodates your needs and expectations. Therefore, carefully observe how investors behave, what habits they have, what markets they invest in, with what levels of risk, and so on: at the end of this analysis phase, take advantage of the demo accounts that brokers make available to you in order to simulate copy trading activities and practice a little. Good investment!
