Many people have the desire to earn money in the financial markets, but not all of them have
the time,
knowledge and desire to trade on their own. Forex brokers offer affordably and simple-to-use
solutions for
all categories of customers. Copy trading is one of the most appealing passive income
options.
Copying positions using a special social platform, you can achieve expert-level
profitability. These kinds of platforms are quite popular, with millions of people joining them.
Read on and
learn about the steps you need to take to copy traders: which brokers offer this service, how to
choose a
suitable trader and the copy trading platform and the risks this type of investment
involves.
What does copy trading mean?
eToro launched a social trading platform in 2010, introducing copy trading on the Forex
market. Inspired
by the rapid growth of social media, the developers decided to adjust their philosophy to
the sphere of
finance.
The idea was equally innovative and simple – to unite the beginners and expert traders on a
single trading
platform. Professional traders are doing what they love the most – trade, while novice traders
have the
option to subscribe to them and copy their trades automatically or semi-automatically, using a
special set
of functions.
Today’s copy trading platforms feature a wide set of functions,
including
searching for a suitable manager and setting up risk management settings. Here are the key
features:
A set of functions for communication and interaction inside the network;
Analytics of the traders’ trading results;
An option to distribute equity among dozens of traders with different strategies
and trading
instruments under their management;
An option to stop copying at any given moment;
An option to set up the maximum risk level for each investment.
Every copy trading platform usually also has other unique features.
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The benefits of copy trading for an investor are rather evident – it provides a possibility to
earn as much
as professionals earn, without putting too much effort into it. The traders, whose positions are
copied,
also benefit, as they gain recognition of their colleagues, a possibility to attract additional
capital,
and, on some platforms, a part of the profit earned by those traders who copied his/her
trades.
Also noteworthy, copy trading platforms do have certain drawbacks, the biggest one being that the
excellent
results of a trader now do not guarantee that the same will be achieved in the future.
So, let’s sum up the information we have divulged so far.
👍 Pros
Low entry threshold
A possibility to enter the market without a big trading experience
It is potentially possible to earn as much as the top traders
Possibility of flexible setting in terms of risk management and search of
traders
👎 Cons
Successful trading in the past does not guarantee high profit in the future
Even the most experienced traders may suffer losses
Top 10 brokers to copy trades on Forex
The first step towards copy trading on Forex is finding a suitable broker that offers this
kind of
service. We have listed the Top 10 Brokers that meet the following criteria:
They are regulated at one of the world’s largest financial centers;
They provide exhaustive information regarding all the important conditions and
risks of copy
trading;
They offer beneficial trading conditions: low commissions and fees, wide
selection of trading
instruments, good quality of order execution;
They own their own advanced set of features for copying, or one of the several
top social trading
platforms, developed by a third party.
All copy trading platforms can be conditionally divided into two big
groups:
1
Mono-platforms. A number of brokers use their own developments and
offer to copy
traders only to
their own customers. eToro, FXTM, RoboForex, Forex4You have their own
proprietary platforms.
2
Copy trading platform providers. In the list above you can see that the majority
of brokers use standard platforms from third-party providers. The most popular among them are MQL,
ZuluTrade, Myfxbook and DupliTrade.
Every platform has their own pros and cons. Our experts chose the best ones and
compiled a rating.
In the table, we specified which brokers use the platform, what the minimum
deposit is and the type
of the platform — a mono-platform or a provider.
For the review, we will further use the copy trading platform developed by eToro. eToro
CopyTrader is a
multifunctional social eco-system, which has been estimated by Traders Union experts as
the best in the
market today.
It has the following advantages:
It allows to copy from 1 to 100 traders simultaneously, choosing among dozens
thousands of options;
Over 2,000 trading instruments, including Forex, Crypto, Stocks and CFDs;
The broker provides beneficial trading conditions. In particular, the broker does
not charge
commission on US stock and ETF trading;
It is the largest trading ecosystem in the world with millions of users from 140
countries and over
100,000 signal suppliers. This provides a gigantic choice of strategies;
Low entry threshold – from $200 per each copied trader;
Flexible filters for trader selection based on the level of risk, profitability,
number of copiers
and other criteria.
The next important step is searching for the best traders to begin copying trades. This
step is just as
important as choosing a broker, because whether you earn a good profit or simply waste
your time depends
on finding the right trader. Because of this, we decided to dedicate more time to this
topic and show
one of the choice strategies in more detail. As an example, we will use CopyTrader,
eToro’s social
trading network.
Traders Union experts recommend to follow two basic principles when
choosing a trader to copy his/her trades:
1
Diversify risks through copying several traders simultaneously.
2
Use a reasonable balance between the risk and potential profitability.
To discover the system of trader search on eToro, you don’t even need to register. You can access
the
broker’s platform as a guest. You can do it by choosing one of the markets in the Top Markets
menu.
However, we recommend opening a demo account with eToro, as it will allow you not only to
review the filters, but also start copying traders, monitoring their financial results in your
Personal Account.
For these purposes, the broker provides virtual $100,000 on the test account.
When you first access the broker’s platform, you need to select Copy People, which you
can find in the menu on the left side of the screen. A system will open that visually resembles a social
network.
Every trader has an avatar, and it is a real photo of a real person,
because traders can achieve serious results on eToro only after verification. If you press on the photo,
the trader’s profile will open with the key information about him/her:
Personal data, interests;
Messages in the social network, where also personal photos can be found;
Detailed performance and statistics of the trades;
Updated composition of the portfolio;
Historical dynamics of portfolio value.
Now, you can start familiarizing yourself with the system of searching
traders for copying. The process can be basically divided into several important stages:
Performance assessment.
The longer the trader trades in the black, the higher is the chance that their
good result is not
just pure luck. It is important that you have the possibility to view the
results at least for one
year. At that, it is necessary to make sure that the trader did not allow
serious slippages (his
portfolio was not in the red by more than 10-15%) over this period.
On the eToro platform, you can choose traders, who have shown positive financial
results in the
period from one month to 2 years. We set the filter for over 10% of
profitability over the past two
years. The system gave us 8,688 results. That is, of course, too many! This
means that we will need
to refine our search and set stricter selection criteria.
Strategy risk assessment.
Naturally, everybody dreams of over 100% annual return. However, you need to keep
in mind that the
return rate and risk are, as a rule, directly correlated. The higher the return
rate the higher is
the risk. We need to find a healthy balance between the desire to earn a lot and
a critically
important need to preserve capital.
You can assess the trader’s risks by analyzing his personal statistics in detail.
You need to find
out the maximum slippages, the number of loss-free months the strategy has shown
and the number of
performed traders. You need to delve into details of the trading strategy,
because averaging
parameters over long time intervals can be misleading. If the trader’s return is
50% in one month
and the next month he loses 30%, it is a bad option.
eToro algorithms have made our task of risk discovery much simpler. They assess trader’s
risk in points
based on big data.
From 0 to 2 points – brokers with the lowest risk level;
From 3 to 6 – average risk level;
From 6 and higher – high risk level.
Using Performance – Risk Score, we set conservative search parameters of traders with
risk level from 2
to 3.
After applying the new criteria, we received 152 results instead of the previous
8,688. However,
the features of eToro for choosing the traders to copy is not limited to that.
Of the members who
show stable financial results, we decided to choose the traders with the highest
return rate. For
this, we set the desired return rate at no less than 30% over two years in the
search criteria. You
can do it using the Advanced-Return filter. As a result, we received 11
options.
Now is the time to review personal preferences of the trader, his portfolio and
other important
criteria. These, in particular, include the number of copiers. If nobody is
interested in the
trader’s profile, maybe he is not as good as it appears.
Using the example of a trader with the username tradefx525, we can see that he
has 747 copiers and
that in the past week he earned 1.22%. It doesn’t look bad.
We also specified that the trader shouldn’t have had slippages by over 5.29% in
each specific month
over 2 years, which corresponds to our conservative search criteria.
Simple guide: how to start copying traders with eToro
After we find the traders that fit our criteria, we go to the next step – copy trading.
As we have
mentioned above, in order to test the features of eToro platform at this stay, you will
need a live or
demo account.
Technically, copying traders on Forex is quite simple – it requires only several, but
quite important
actions:
1
At the bottom of the selected traders, you will see the COPY button – you need to
press it.
2
eToro will open a window with individual copy settings for this specific
trader.
3
The next important task is to determine the amount you will allocate for each
trader. Traders Union
experts recommend to start with at least 3-5 traders, which requires at least
$600-$1,000. By
diversifying your portfolio among different traders, you increase its stability,
flexibility and
your chances of earning profit.
4
It is just as expedient to set up risk management criteria. You need to determine
the level of
loss, at which the system will have to stop copying the given trader
automatically. Since we used
conservative parameters for selection of traders on eToro, we will also set a
conservative
admissible risk level – up to 10%.
5
Once you’ve set all important criteria, you can press the COPY button once
more.
Our task has been fulfilled here – the trader has been added to the list of the traders you
copy.
Additionally, you can copy portfolios on eToro. They are quite well diversified and are
managed by
several successful traders. This can be a good solution, if you have at least $5,000, which
is the minimum
investment here.
In the specified example, the portfolio has shown stable profitability over the
past 2 years
without substantial slippages.
After fulfilling all formalities, we formed a pool of four traders and
one portfolio. You can monitor it in the Portfolio section on eToro’s web portal. Also there, you
can:
Remove traders from the list of traders that you copy;
Monitor and visualize statistics;
Pause copying;
Add an amount for copying or reduce it.
As you can see, the chosen portfolio has shown a small return in the first week already.
However, it
will require over a month for a fair assessment of the results.
Another good option for starting copy trading on eToro is to monitor recommendations of
experienced editors
of the portal. They choose traders with a good balance between risk and profitability and offer
them on the
page of their copy trading system.
Another good option for starting copy trading on eToro is to monitor recommendations of
experienced editors
of the portal. They choose traders with a good balance between risk and profitability and offer
them on the
page of their copy trading system.
We also recommend viewing a tutorial on how to use eToro copy trading system.
What is specific of copying traders on Forex?
Copy trading on Forex is quite similar to other markets. It is just as important here to really
focus on
carefully searching for the right broker and traders to copy. Some brokers, including eToro,
offer an option
of choosing traders who specialized in this market and show great results.
As for the peculiarities, one must keep in mind that the currency market is,
usually, calmer
in terms of volatility. In order to increase returns, many traders try to use a big leverage.
This practice
leads to increased risks. That is why it is always important to check the maximum slippages that
a trader
you plan to copy has had.
High liquidity makes this market attractive for high-frequency strategies. In this case, control
over the
expenses for paying broker’s commissions will play an important role.
Can you make money from copying traders?
Of course you can. If copy trading did not bring profit to a large number of
investors, it
wouldn’t have been so popular. However, just as with any investment, there are always risks.
You can make
a good profit, but you can also lose some of your equity. For this reason, copy trading on
Forex should
not be viewed as the only area of investment. Do not invest more than you can afford to
lose.
The main risks of copying trades
The markets are essentially volatile and the strategies that bring excellent results to traders
today may
turn out to be totally ineffective tomorrow. Profit in the past does not guarantee returns in
the future.
The advice we gave earlier will help you minimize the risks. Let’s
repeat the three main recommendations:
1
Diversification of the portfolio among traders
2
Monitoring trading history of the trader for the period of one year or longer and
excluding the
traders that allowed major slippages of the portfolio
3
Limiting the level of maximum losses for automatic stopping of copying
In addition, it is recommended to invest a smaller share of your capital in higher-risk
strategies and the
bigger part – into less risky strategies.
What the main costs of copying traders
The costs largely depend on the chosen broker and copy trading platform. For example, on
eToro you will
pay only for the cost of the transaction – spreads and commissions, if they are charged.
As for the peculiarities, one must keep in mind that the currency market is,
usually,
calmer in terms of volatility. In order to increase returns, many traders try to use a big
leverage. This
practice leads to increased risks. That is why it is always important to check the maximum
slippages that
a trader you plan to copy has had.
High liquidity makes this market attractive for high-frequency strategies. In this case,
control over the
expenses for paying broker’s commissions will play an important role.
Summary
Copy trading is certainly a quite promising area for making money on Forex and other financial
markets.
Thanks to this service, even novice traders with small investment amounts can earn a profit at
the level of
a professional trader. However, one should always keep in mind that profit and risks are always
close to
each other, which is why one should not overestimate the possibilities of copy trading. Do not
forget about
the rules of diversification and do not try to chase excess profit, and then you will have a
better chance
at earning some real profit.
Author:
Grant Adlington
Independent trader-analyst
•In 2008, he graduated from the London Institute
of Banking
and Finance, Department of Finance, Investments, and Risk;
•In 2009, he became the youngest trader-analyst at
Global
Invest;
•He has 12-years of experience in continuous
trading in the
Forex currency market.
Expert commentary
Antony Robertson, Traders Union Financial Analyst
At first glance, copy trading seems like a very simple task. Indeed, the platforms are trying to
improve
usability as much as they can, build the search logic and filters in a way that any customer can
understand.
However, this type of investment should be treated just as seriously as any other. Analysis of
trader
statistics, building an investment portfolio, setting risk management criteria – these are the
actions you
have to understand, otherwise you risk getting ‘burned’.
If you treat this seriously, your chances to achieve success will improve substantially, but
still won’t be
guaranteed, simply because that is how the market works – the strategy that works well today may
turn out to
be unsuccessful tomorrow.
Copying traders reviews
I’ve been with eToro for six months now. I started as a trader, but due to my work load, I simply
didn’t
have enough time for this. So I decided to try a copy trading service. At first I invested $500
and got +10%
to my portfolio in the first two months; then I added another $1,000. Now, I’m watching what
happens next.
So far, I’m in the black.
Gordon Chandler, 47
IT Manager
New York
Copying traders on FXTM turned out to be a lost time for me. I got hooked on the promise of big
returns. At
first, things were going well, but as soon as there was volatility on the market, my traders
started to
slip; I chose different ones, but the picture was mixed there – a month of profit, then a month
of loss. In
the end I broke even and decided it was good enough. Maybe I wasn’t patient enough.
Riana Young, 28
Sales Manager
Glasgow
Huge profit is the thing that one should not expect from copy trading. Of course, you may get
lucky, if you
choose a good trader at the right moment. However, often, those who have big profit later lose
it just the
same. I believe that the ideal strategy is to build a pool for copying several traders with
conservative
strategy. The chances to get 15-20% annual profit are much higher than 150%.
Sean Fulton, 33
Business owner
Indianapolis
My experience with ZuluTrade turned out to be fully successful. The platform is very convenient,
with many
filters that can help you choose the strategy to any taste. There are a humongous number of
traders. I use a
portfolio. I invest the investment part into conservative traders that trade fundamental
analysis and the
speculative part – into highly profitable traders. In reality, the result is more or less the
same. Still, I
dream of getting at least some excess profit together with somebody!
Robertо Faber, 27
Dentist
Madrid
FAQ
What kind of profit can I expect by copying
traders?
Profitability depends on many factors. There is no
universal
answer. Firstly, it is important to choose a good broker with beneficial trading
conditions. Secondly,
you need to find an effective trader, who shows stable financial results. And,
naturally, market
situation and other circumstances also play a certain role in this.
Can I lose money by copying traders?
Yes, this is a probability. Trading on the financial
market always
involves a certain degree of risk. This is why it is important to observe the rules of
risk management
and not to invest more than the amount you are prepared to risk into financial
instruments.
Which broker should I choose for copy trading?
This largely depends on your individual preferences.
According to
Traders Union expert assessment, eToro currently has the best offer. The broker offers a
combination of
a convenient copy trading platform, good trading conditions and reliability.
Who is the best copy trading broker today?
As of today, eToro is on the top of the list. The
broker boasts the
most advanced platform, beneficial conditions for copy trading and the largest choice of
signal
suppliers.
