Pros and Cons of Copy Trading

Copy trading is frequently recommended to beginners, but not only, for the advantages it brings.

Copy trading allows you to invest money automatically without direct knowledge of the markets, it is customizable according to your objectives, it allows you to diversify your investments and it allows you to earn money as a signal provider.

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Benefits of copy trading

Here are some of the key benefits for those engaged in copy trading.

1. It allows to invest with limited market knowledge

Copy trading allows traders with limited knowledge, be it as beginners or those with little time to trade themselves, an opportunity to invest. Following and copying the strategies of experienced traders can prove beneficial, though it does not completely remove the need to research and understand the market alongside implementing a solid risk management strategy.

2. It saves time by automating the process

At the core of copy trading is the fact that the vast majority of the process can be automated. Choose a signal provider or trader to replicate and the copy trading platform will typically facilitate the rest based on certain parameters set by the investor. This can save a lot of time compared with manually inputting trades.

3. You can learn how professional traders operate

Using copy and social trading platforms like eToro and others provides investors with the opportunity to not only copy trading strategies, but also to observe and learn from more experienced and professional traders.

This kind of experience can be an educational one that proves valuable in the long term, particularly for beginner traders and those new to the industry.

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(77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money)

4. You can customize the trades according to your needs

Most of the best Copy Trading platforms, like eToro and ZuluTrade, and others not only allow users to directly copy the trades and strategies of signal providers but also to customize certain parameters of how they copy.

This means that investors can choose to copy trades but at lower volumes, or only copy certain portions of a trade. What and how much is copied from a signal provider can very often be flexible. This allows copied trades to fit different risk profiles and account levels.

5. Copy trading diversifies your investments

Diversification of a portfolio is an important aspect of risk management. This kind of diversification is also possible when copy trading. Investors can select between a variety of different traders trading different assets, over different timeframes, and with different strategic approaches. This can all combine to provide balance and diversity within a portfolio.

6. You can work as a full-time signal provider

There is also potential for users to act as signal providers with copy trading brokers. Each broker has its own system but most allow for signal providers to be paid a fee or percentage based on the number of follows they have.

For experienced traders with strong trading strategies that can stand up to scrutiny, this can be a good opportunity to trade and earn at the same time.

Cons of copy trading

Now, here is a look at some of the main downsides of copy trading.

1. You have no control over the trading decisions

Those engaged in copy trading have no control over the trading strategies and decisions of signal providers they are copying. Though certain parameters can be put in place around how the trades are copied, investors still need to pay close attention to the trades, strategy, and current market environment.

2. The results are not guaranteed

Copy trading allows the opportunity to copy some very experienced and even professional traders. As with all forms of trading though, there is still risk involved. Past performance is a useful guide but can’t guarantee future success and profits.

3. It often requires a higher budget than solo-trading

Getting started in copy trading often requires a higher budget. Signal providers will often require followers to invest $500 or more. This is typically more than is needed to get started individual trading with most brokers requiring a $200 deposit or less. If a trader does not invest enough then it is likely the strategy will be unable to perfectly replicate and end results could be impacted.

FAQs

Is it profitable to copy trade?

Copy trading profitability depends on the success of the traders you decide to copy, as well as timing in the market. Copy trading still carries risk.

Is copy trading good for beginners?

Copy trading is easier to pick up than trading yourself. As a trader, you should still learn the basics of investing and how to create a portfolio above all.

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.

Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.