You should know, however, that the first of these innovative investment practices to arrive has been Mirror Trading.
We can say that Mirror Trading has brought to life this new sector, which has then evolved into many new solutions and facets.
In this post you’ll find:
- The precise explanation of what is Mirror Trading
- What characterizes it compared to the other systems
- What are advantages and disadvantages
- What is the best platform for Forex Mirror Trading
What Mirror Trading is and what are the key features
Mirror … Copy … Social …
So many names to say almost the same thing.
However, to be precise and professional, Mirror Trading has some pretty specific characteristics that distinguish it from the other two.
Mirror Trading is an innovative method of investment with which the investor can:
- select one or more automatic algorithmic trading strategies, hosted and run on the Mirror Trading platform server;
- connect his trading account to one or more of these strategies;
- automatic and proportionally copy into his account each trading signal executed by these strategies, in order to replicate their performance.
Essentially, when a trade is opened, closed or changed according to the algorithmic strategy, the same is done to the replicated investor’s trade, on his personal trading account.
What distinguishes Mirror Trading
Mirror Trading refers to a situation in which a Signal Provider uploaded his automated strategy on a Mirror Trading Platform.
The strategy is usually examined, checked, tested, and after that is made available to all investors.
So, it comes to replicate a program (created by a trader) that runs on a server platform.
With Copy Trading, instead, we have a trader who connects his trading account to the platform, and the platform that records everything that is executed by the trader, in order to produce data on his performance visible by investors.
So, in this case, it comes to replicating a person and his operations. However, in substance very often the difference is really minimum, because nothing prohibits a trader to use an algorithmic strategy on his own account, and therefore in that case we will have a situation virtually identical to that of Mirror Trading.
And Social Trading?
Whether it’s a Mirror Trading or Copy Trading Platform, if we add some extras Social Network features, with the ability for users to interact with each other, we have created a Social Trading Platform.
Nothing could be simpler. However, if you want to deepen, in this post we talk about all these differences.
What type of trader are you?
79.67% of retail CFD accounts lose money
Pros and Cons of Mirror Trading
Like any form of investment, even Mirror Trading has both strengths and weaknesses, opportunities and risks.
The Mirror Trading Pros
Among the strengths are:
Control of your capital: one of the first news of this method of investment was the fact that every investor, unlike traditional investment methods where you have to deliver your funds to a manager, retains possession of the capital. To invest you need to open a trading account in your own name and pour capital into it, but it will always remain under your control and it will not be physically managed by other entities, and therefore is a better form of security for your funds.
Emotional impact reduction: among the main obstacles to all beginners who approach the world of online trading, there is lack of strategy on the one hand, and certainly the inability to manage emotions on the other. Investing in financial markets is very stressful, and can greatly impact on people’s emotions. Mirror trading removes part of this component because you are not the one to decide when and how to open or close the trades, but the strategy you have chosen.
Wide range of instruments and markets: in the beginning Mirror Trading was born only on Forex market, and still this the most followed and rich market. Over the years, however, platforms have evolved, the offer has expanded and today you can find mirror trading services for CFDs, Stocks, Futures, Options and Binary Options.
Proportional Signals Replication: one of the main advantages of Mirror Trading is definitely the proportionality of the signal replication. In essence, if the strategy, for example, works on a $ 100,000 account, but ours instead is only $ 10,000, it is clear that its and our trades should not have the same size, because if so, on our smaller account, they would impact in a much greater extent, with consequent greater risks. With Mirror Trading we have various replication options, the fixed or proportional, both created to allow users to replicate the signals with the appropriate amount given the size of their own capital.
Ability to check the performance before: in the world of Forex, automated trading Robots or EA are very famous, i.e. programs that trade automatically, to be installed on your trading platform. The problem with these solutions is that it is never possible to be sure of the actual effectiveness, and you almost always have to test the system sight unseen, because the creators rarely release a real performance statement. With Mirror Trading of course there is no certainty of future performance (unfortunately we will never have it, anywhere and anyhow), but at least you have a view on the real performance of the strategy recorded up to that point, and therefore you have a parameter and truthful information to help you better choose.
Ability to manage risk: investing with Mirror Trading means you have total control over your capital, and this also means having the ability to manage risk according to your own will.
The Mirror Trading Cons
Among the weaknesses we can instead indicate:
Slowness of automatic strategies to adapt: markets often change frequently and rapidly. Automatic strategies usually are not as quick to adapt to such changes, and many times they are only able to generate good performance in specific market conditions. You should therefore only evaluate those strategies with enough historical track records, strategies that have already faced different situations and market conditions, managing to overcome them by behaving well.
Risk assessment is not as easy as it seems: evaluating the performance and effectiveness of a strategy is not always as simple as it might seem. Understanding whether it is in profit or not is certainly immediate, but understanding how this profit is generated is the difficult part. In essence, to generate profits every strategy must necessarily take some risks. Many investors often find it difficult to identify and to really understand these risks and what they entail.
Complicated portfolio and money management: after performing an assessment of performance and risk, the second step is to translate these assessments in operational decisions. Translated in other words, according to our expectations and the risks we are willing to take, we have to learn how to transform these choices and create a diversified portfolio to achieve our goals. Although Mirror Trading takes the problem of not knowing how to trade out of the equation, it is equally true that it poses a different kind of problems, problems that the investor must necessarily learn to deal with and manage in order to be successful.
Unexpected risks: since we are talking about automatic strategies, Mirror Trading has also eliminated the risk of having the signal provider we are following going mad. Nevertheless, being an investment constructed through the use of different technologies and platforms, there are still risks of malfunctions. Therefore, always maintain a certain level of periodic inspection on your investment.
Best platform for Mirror Trading
Today’s Mirror, copy, social trading platforms are very similar, because the concept that underlies this field is always the same: to provide the investor the opportunity to choose who should be trading in his place.
In this regard, we created our Top10 of the best Social Trading Network, and within it we have also included the real, perhaps the only, original Mirror Trading Platform.
We are talking about Tradency’s Mirror Trader.
Beyond this, Tradency is now one of the few platforms to offer an original Mirror Trading service, widely acknowledged as the best in terms of quality.
How to learn Mirror Trading
As said earlier, the concepts of Mirror Trading and Copy Trading (especially these two) are very similar.
In certain cases they are even identical.
InvestinGoal has created a guide to Copy / Social Trading, but it’s obviously a perfect fit for an investment with Mirror Trading.
In addition to that we also created several other essential guides to the investment with Mirror Trading, needed to tackle this adventure with the right means.
For any other eventuality, please contact us.
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Let us know what you think or if you have questions.
See you soon.