Copy trading has been steadily growing in popularity over the past few years, now accounting for an estimated 6% to 20% of total trading volumes at many brokers, according to leading copy trading technology providers.
Several factors drive this growth, but the main reason is the simple, low-effort entry into the financial markets, especially appealing for beginners. For more experienced traders, it serves as a way to diversify their approach and generate income by allowing others to follow their strategies.
If you want to explore copy trading yourself, check out this guide to the best copy trading forex brokers.
How Copy Trading Works
Copy trading is an investment method that lets you automatically replicate the trades of another trader, often called a strategy provider. Instead of making trading decisions yourself, you follow the moves of someone more experienced, with trades mirrored directly into your account in real time.
Once you’ve chosen a trader to copy, your account will execute the same trades they make, usually copied proportionally to your investment size. For example, if a strategy provider opens a position that represents 5% of their account balance, your account will open the same position with 5% of your allocated copy trading funds. The trading platform or broker handles the process automatically, removing the need for constant monitoring or manual execution.
How Do I Choose a Strategy Provider?
The most important step is choosing the right trader(s) to copy, so make sure to do a lot of research beforehand. Most platforms offer performance data and user reviews to help with this decision.
Here are the some indicators to pay extra attention to:
- Historical performance: Past returns can give an idea of consistency, but remember that this doesn’t guarantee future results.
- Risk score: Higher returns often come with higher risk. Platforms usually assign a risk level (e.g., 1 to 10) based on metrics like drawdown and trade frequency
- Trading style: Is the trader using short-term scalping, swing trading, or long-term positions? Make sure their style aligns with your knowledge level and interest.
- Communication and transparency: Some providers share detailed analyses and updates, which can be useful for learning and building trust.
It’s also wise to diversify by following multiple strategy providers, especially when starting out.
What are the cons of Copy Trading?
While copy trading offers a simplified way to participate in the forex market, it’s important to be aware of the risks and limitations before getting started.
1. Lack of Control
One of the biggest trade-offs with copy trading is handing over decision-making power to someone else. You won’t be choosing entry or exit points, stop-loss levels, or trade sizes yourself. If your strategy provider makes a decision you disagree with, or acts emotionally during a volatile market, you’ll be automatically affected.
2. Over-Reliance on Historical Performance
Most platforms display impressive charts showing the past success of strategy providers. A trader with strong returns in the last six months could easily underperform in changing market conditions.
3. Performance Fees and Costs
While this can incentivise strategy providers to perform well, it also eats into your profits over time. Additionally, some providers may engage in frequent trading to earn more fees, which can increase your costs and risk exposure.
4. Differences in Risk Tolerance
Just because a trader is successful doesn’t mean their risk appetite matches yours. Some providers use aggressive strategies to boost returns, including trading with high leverage or during low-liquidity periods.
5. Lack of Skill Development
While copy trading can be a good learning tool, it’s easy to become overly passive. Relying entirely on others for decision-making may slow down your growth as a trader. If your goal is to eventually trade independently, you still need to invest time into learning how the markets work, managing risk, and developing your own strategies.
How to get started with Copy Trading
Getting started with copy trading is fairly straightforward. Still, there are a few important steps to follow.
1. Choose a Reputable Broker/Platform
Not all brokers offer copy trading, and the ones that do can differ significantly in terms of features, transparency, and costs. You can choose a broker with third-party integration like Duplitrade or Myfxbook, but some brokers integrate copy trading directly into their proprietary platforms.
If possible, choose a broker with a demo account that supports copy trading—a great way for beginners to practise selecting traders and managing risk. Most importantly, always choose a broker regulated by a top-tier regulator (such as ASIC, FCA, CySEC, etc.).
2. Open a Trading Account
Once you’ve selected a platform, you’ll need to create an account. Most brokers require identity verification as part of KYC (Know Your Customer), although requirements may vary by jurisdiction and regulatory oversight. You also need to make a minimum deposit amount, which will vary depending on the broker. Many brokers also charge some sort of fee for using the copy trading service, or they take a commission from the strategy provider’s earnings.
3. Browse and Evaluate Strategy Providers
Take your time when reviewing trader profiles. Most platforms will allow you to sort providers by return, risk score, drawdown, number of followers, and trading style. Many platforms also allow you to view how strategy providers performed during specific market events, which helps assess how they handle volatility.
4. Allocate Funds and Set Risk Controls
You can usually set how much of your capital to dedicate, as well as specific risk management tools, such as: stop-loss limits, maximum trade size, and pause or withdraw options.
5. Monitor and Adjust
Although copy trading is largely automated, that doesn’t mean it’s completely hands-off. It’s important to regularly check performance metrics, review strategy provider updates and market commentary, and adjust risk settings or reallocate funds.
Final Thoughts
Copy trading can be a powerful entry point into forex and other financial markets, especially for beginners. By choosing the right strategy provider and keeping risk controls in place, it’s possible to participate in the markets without the often steep learning curve of traditional trading.
That said, becoming successful in copy trading still depends on being informed, staying engaged, and understanding the potential rewards and risks. Use it as a learning tool, diversify your exposure, and monitor performance regularly.
