What is Сopy Trading? Learn How it Works

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Copy trading is an automated strategy where you replicate the trades of experienced traders in real-time. This approach allows beginners or busy individuals to follow professional strategies without actively managing trades themselves.

Copy trading is a popular strategy that allows beginners and busy investors to mirror the trades of experienced traders in real-time. By replicating the strategies of successful professionals, users can potentially profit from their expertise without extensive market knowledge or time commitment. This approach combines accessibility with efficiency, making it a preferred choice for those who want to benefit from financial markets without actively managing their investments.

In this article, we’ll explore how copy trading works, its advantages, and key factors to consider when choosing a platform or trader to follow.

What is copy trading?

Copy trading is an investment strategy that allows individuals to automatically replicate the trades of experienced traders. Essentially, it enables beginners or those with limited market knowledge to mirror the positions of professional investors in real-time. This method is facilitated through trading platforms that connect investors and provide tools to copy trades, making it possible to achieve similar results as the traders being followed.

The concept is simple: once you select a trader to copy, their trades — whether opening or closing positions — are automatically duplicated in your account. This eliminates the need for in-depth market analysis or active trade management. Copy trading is particularly popular in Forex, cryptocurrency, and stock markets, offering a way for investors to potentially profit while learning from experienced traders' strategies. It is ideal for those who lack time to actively monitor markets or are new to trading.

While copy trading offers accessibility and convenience, it’s important to carefully evaluate the performance, risk level, and consistency of the traders you follow. Success depends not only on the trader's skills but also on aligning their risk tolerance with your own investment goals.

Copy trading pros and cons

Low entry threshold
Possibility to invest without knowledge and experience
User-friendly set of features for copying
Possibility to unsubscribe from the copying service at any moment
Learning investment strategies using real-life examples

Results of the copied traders in the past do not always guarantee that they will repeat in the future
The fee of successful traders sometimes reaches 30-40%

How does copy trading work? A real-life example

Copy trading operates through a trading platform that connects two types of users: experienced traders (often called signal providers) and investors looking to replicate their trades. Once an investor selects a trader to follow, the platform automatically duplicates the trader's positions in the investor's account, proportionate to their investment size.

Real-Life Example

Let’s say John, a beginner investor, joins a copy trading platform and allocates $1,000 to copy Emma, a professional trader with a consistent history of success. Emma decides to open a trade, investing 10% of her $10,000 account ($1,000) into buying EUR/USD. Because John has chosen to copy Emma at a proportional level, 10% of his $1,000 investment ($100) will be placed in the same trade.

If Emma closes her trade with a 10% profit, she earns $100. In John’s case, his $100 investment grows by 10%, giving him a $10 profit. The platform automatically executes both the opening and closing of the trade, requiring no action from John.

This real-life example highlights how copy trading enables beginners to mimic the decisions of experienced traders, potentially earning similar profits with minimal effort. However, while gains can be mirrored, losses are also proportional, so evaluating a trader’s performance and risk level before copying is essential.

Flexibility of settings allows Alice to do the following at any moment:

Monitor financial results of each trader in detail.
Add another copied trader to the portfolio.
Stop copying any trader and withdraw money.
Stop copying for a period of time.
Increase and reduce the amount for copying for each of the traders.

Can I earn money on copy trading?

Copy trading can bring you both higher than average return and losses. The effectiveness depends on many factors, the main ones being:

The return rate will largely depend on the broker and the social trading platform he offers.
The traders you choose to copy.
Commissions and fees charged by brokers and traders.
Market situation.

According to eToro, in 2019 the average return rate of 50 most successful copied traders was 29%. However, one should always keep in mind that profitability in the past never guarantees the same outcome in the present.

Experts also recommend to treat the brokers who promise sky-high return rates on their social trading platforms with low risks rather skeptically.

Read our article for more details on how to select a broker for copy trading, the mechanism of selecting traders and specifics of copying.

Is Copy Trading safe?

Copy trading can be safe when approached with caution and the right strategies. Its safety depends on several key factors that traders must carefully consider before getting started.

Factors that influence safety

Platform credibility. The safety of copy trading begins with the platform you choose. Look for platforms with strong reputations, secure technology, and transparent policies. Features like encrypted transactions and clear terms of service add an extra layer of trust.
Trader selection. The performance of the traders you choose to copy directly impacts your results. It’s important to evaluate their trading history, risk level, and strategies. Favor traders with consistent performance over a long period rather than those with sporadic, high-risk gains.
Risk management tools. Platforms offering tools like stop-loss orders, allocation controls, and risk scores can help you manage your exposure effectively. Using these features wisely can protect your investments from excessive losses.
Diversification. Spreading your investments across multiple traders with different strategies reduces reliance on a single trader and minimizes overall risk. Diversification is crucial for maintaining a balanced portfolio.
Personal understanding. While copy trading allows you to follow experienced traders, it’s important to understand the basic principles of the market. This knowledge helps you make informed decisions about which traders and strategies align with your financial goals.

Where to start?

To start copy trading, you first have to take these five steps:

Search for the broker that offers the service
Search for the suitable traders for copying
Compose a portfolio of copied traders
Setting up the criteria of copying and risk management
Monitoring financial results and re-balancing the portfolio

Best copy trading Forex brokers

	Min. deposit, $	ECN Spread EUR/USD	Regulation	TU overall score	Open an account
Pepperstone		0,1	ASIC, FCA, DFSA, BaFin, CMA, SCB, CySec	7.17	Open an account Your capital is at risk.
OANDA		0,15	FSC (BVI), ASIC, IIROC, FCA, CFTC, NFA	6.79	Open an account Your capital is at risk.
FOREX.com	100	0,2	CIMA, FCA, FSA (Japan), NFA, IIROC, ASIC, CFTC	6.95	Study review

FAQs

How do you choose a trader for copying?

You need to approach this issue very carefully, as the potential of return directly depends on the trader you choose. We recommend reviewing the financial result of the signal supplier over a long period of time, the longer the better, and see whether his profit has been stable or there have been serious slippages.

Is Copy Trading legal?

Copy trading is legal in the majority of countries. However, some regulators point that the brokers don’t always disclose to the investors the full list of information about the important peculiarities of copy trading. We recommend that you choose brokers with reliable regulation for copy trading. In this way, you are most likely to choose a fully legal option.

Where to start?

To start working, you first have to take these five steps:

Search for the broker that offers the service
Search for the suitable traders for copying
Compose a portfolio of copied traders
Setting up the criteria of copying and risk management
Monitoring financial results and re-balancing the portfolio

Team that worked on the article

Ivan is a financial expert and analyst specializing in Forex, crypto, and stock trading. He prefers conservative trading strategies with low and medium risks, as well as medium-term and long-term investments. He has been working with financial markets for 8 years. Ivan prepares text materials for novice traders. He specializes in reviews and assessment of brokers, analyzing their reliability, trading conditions, and features.

Learn about our editorial policies

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).

ECN

An ECN, or Electronic Communication Network, is a technology that connects traders directly to market participants, facilitating transparent and direct access to financial markets.

Diversification

Diversification is an investment strategy that involves spreading investments across different asset classes, industries, and geographic regions to reduce overall risk.

Copy trading

Copy trading is an investing tactic where traders replicate the trading strategies of more experienced traders, automatically mirroring their trades in their own accounts to potentially achieve similar results.

Risk Management

Risk management is a risk management model that involves controlling potential losses while maximizing profits. The main risk management tools are stop loss, take profit, calculation of position volume taking into account leverage and pip value.

Forex God

The informal term "Forex Gods" refers to highly successful and renowned forex traders such as George Soros, Bruce Kovner, and Paul Tudor Jones, who have demonstrated exceptional skills and profitability in the forex markets.

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