Copy trading allows you to copy the trades of successful FOREX traders and make a profit using their knowledge. Let’s face it, one of the biggest barriers to trading is the lack of knowledge. Not many have the time to study charts, study different patterns and stay on top of the news. With copy trading, you can forget all that and use FOREX as an investment mechanism.
In this article, I will discuss how to get started, how to find traders to copy and how to secure your investment by diversifying.
Getting started with copy trading
The first thing you need to do is create an account with eToro, the tool I use to execute my trades. You can learn more about the services by reading my eToro review. In short, it’s a beginner friendly platform with a very easy to use interface.
How much should I invest?
It’s up to you to decide how much you want to invest. Minimum amount to copy a trader is $100. So I recommend a minimum of $500 so you can copy at least 5 traders with $100 each. But you can get started as low as $200. If you like the results you can always add more funds. You can expect a return of 2% – 3% per month with a low-risk strategy.
How to find good traders worth copying
Now that you’ve registered and uploaded the money it’s time to find good traders to copy. To do this click on the “Copy People” link on your eToro dashboard. You should see a screen similar to the one below.
As the highlighted section show, you can filter out people based country, market type, how much they gained and in what period. Once you click “advanced search” you will see much more options like risk score, has a picture, daily draw down etc.
Which traders you copy depends on your goals. If you want some quick profit you can copy high risk, high reward traders. If you’re thinking long term then you need to find low-risk traders who made decent gains. Below are some basic filters you can try.
Low-risk copy trading strategy with long term returns
This is excellent if you want to use FOREX as an investment mechanism. Country and the market shouldn’t matter to you so keep the default values “Everywhere” and “Any Market”. Set “Gained at least” to 30% and “During the” to 12 months. Set the risk score between 1-4. This will provide you with a good list of traders who have gained a decent amount with a low-risk strategy.
Follow them and start seeing slow and steady gains. In general, you will see 2% – 3% gain per month. Which is a much better return than most other investment opportunities.
Medium risk strategy with better gains
In the default search, the risk score is between 1-6. Higher risk score means you’re trading using higher leverages. So they usually make higher profits at a greater risk. But you shouldn’t totally ignore them either. Keep the default values to country and market. Set “Gained at least” to 50% and the “During the” to 12 months. Picking who to follow from this list is a bit tricky.
Picking who to follow from this list is a bit tricky. I generally click on their profiles and see their performance in the last 12 months. Did they make a profit in a majority of months? This is usually a sign of a good strategy. So follow them. But if someone has made the gains because of good trades in few months then it’s best to skip those traders. For example, the following trader has performed well in the last few months and worth following.
Find similar traders and start copying some of them. You should see gains of around 4% – 6% with these type of traders.
High risk, high returns copy trading strategy
I do not recommend this at all. But, it’s your money so you should know such a thing exist. These are traders who trade with extremely high leverages. Although they might hit it off for a month or two it’s unlikely that they will continue to perform steadily. You can find these types of traders by setting the risk score to between 6 and 10.
With these traders, you can see gains as high as 50% per month. Similarly, you might end up losing half of your capital.
I recommend a diverse set of traders
My recommendation is to distribute your money across 5-10 traders. You can find a nice mix between low-risk traders and medium risk traders. And if you like a bit of excitement allocate some for a high-risk trader as well.
How to make the most out of copy trading
Now that you know the basics of copy trading and how to find traders here’s how you can maximize those benefits.
- Evaluate traders every month – Some traders suffer losses and stop trading. Some leave for other platforms. You should constantly monitor the traders you copy and reevaluate whether you should keep copying them or not.
- Set stop losses for traders – You can set a minimum amount to lose when following a trader. For example, if you copy someone with $100, you can set it to stop copying if the trader loses 40% of the investment. This is the default values and you should stick with it.
- Check back regularly for new traders – There are always up and coming traders with new strategies. Check back often and copy some of them too.
Conclusion: Copy trading is a great investment strategy
I believe copy trading is a great way to enter the FOREX market. Even with a 2% gain per month, you’ll be gaining around 24% per year. So this definitely gives much better returns than most traditional investment methods. If you’re uncertain about it you can start with a small amount and add more funds when you see the results. As always if you have any questions don’t hesitate to ask in the comments.