What is Copy Trading?

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What is Copy Trading?

In the world of trading and especially cryptocurrencies, terms are coined quickly. This is however not an entirely new phrase in trading, but you are not alone when asking yourself “What is copy trades and how does it relate to me?”. Well, in this article we will primarily have a look at the tool, aptly named, Copy Trading.

Market trading was once a financial investment option which was limited to high net worth individuals and institutional investors. Over time, markets started opening up and began attracting smaller, non-professional investors. The introduction of online trading made this type of investment an option for a greater global audience, thanks, in part, to the significant reduction of fees and cutting of bureaucratic processes. As a result, there has been a massive increase in the number of online trading platforms, offering increasingly competitive fees as well as tools and features. Copy Trading is one such tool and is an ideal option for both novice and experienced traders.

Copy Trading Explained

The premise of Copy Trading is indeed very simple. In essence, this tool lets you copy the trades made by another trader. Both you and the other trader would need to be registered on the same trading platform, and this would allow the duplication of trades, oftentimes automatically.

Whilst the trader you choose to copy might invest $1m, this does not mean that you too need to fund your account by this amount. Copy Trading bases trades on proportionality. If the trader invests 5% on one position, then 5% of your account balance dedicated to Copy Trading this trader will also be invested. This lets you gain access to a valuable tool without requiring major capital.

For novice users, Copy Trading opens up opportunities to benefit from the knowledge, experience, and gut feelings of successful traders. Normally, those who start trading need to go through a learning curve, and this generally involves losing a higher percentage of their capital when compared to experienced traders. By investing part of their portfolio into Copy Trading accounts, these traders would be able to reduce these potential losses, whilst increasing the likelihood of successful trades.

Another important benefit of using Copy Trading is that you are not required to follow your investments closely. Since your trades are automatically based on those of the trader or traders you decide to copy, you can limit your portfolio overview to just once or twice a week. Since the trader whom you are copying has his or her own money invested, they are likely to be following it closely, and would only take decisions which are deemed beneficial to the trade.

Whilst Copy Trading first began with limited markets, the tool has today extended across most markets. Depending on the platform you use to copy trade, you can trade Forex, commodities, ETFs, stocks, and indices. Recently, cryptocurrencies have also been included, which means that you can copy traders who invest in Bitcoin, Ethereum, Litecoin, and other supported digital coins.

Trading on Your Mobile Device or Laptop

The Essentials of Copy Trading

Whilst the exact components of a Copy Trading tool depend on the provider, practically all reputable ones share the same essentials.

Platform

The platform is the point where you, the trader you wish to copy, and the broker offering the service and markets come together. There are several different Copy Trading platforms available, each with its own characteristics and benefits. 

Market

For Copy Trading to work you need access to a financial market, such as fiat currencies or cryptocurrencies. In fact, this trading tool originated from the Forex market, but thanks to the introduction of Contracts for Difference (CFDs) it is now available across a variety of exciting markets.

Broker

A broker’s role in Copy Trading is to offer you a trading account which you can use to send and receive funds. The broker would normally also act as the link between you and the trader you are copying. Some of the best brokers also offer their own platform.

Trader

The trader is the term normally associated with the individual you have decided to copy. In most cases, you will only find a particular trader on one platform, although it can be possible to find the same trader offering Copy Trading opportunities on multiple platforms. Reputable Copy Trading platforms provide you with extensive information on traders, including risk appetite, success rate, historical profits/losses, and specialised markets. Without this information, it can be very difficult to choose a trader who matches your investment strategy.

Investor

The investor is the term normally associated with the person whose capital is being invested by the trader. Therefore, it is likely that you will be an investor. Naturally, without your decision to invest, Copy Trading cannot start.

Best Copy Trading Platform

Although there are several platforms which offer Copy Trading as an additional tool, one platform stands out as the absolute winner. As the best Copy Trading platform, eToro gives traders access to an unparalleled range of markets, payment options, and investment opportunities. In addition, it ranks highly amongst the best mobile trading platforms as well as the list of best CFD brokers and Forex brokers.

eToro’s CopyTrader

This content does not apply to US traders.

Far from being just another Copy Trader, eToro’s CopyTrader is considered to be a social trading platform. Apart from offering the essential elements of any reputable platform, eToro goes further, offering traders and investors an opportunity to interact through live feeds, comments, and messages. By being able to get in touch with the traders, you get to learn and ask questions from a pool of successful and knowledgeable investors.

CopyTrader is available across digital devices but does not require any download unless you are using the mobile app. User friendly, intuitive, and well designed, the platform looks and feel great. Beyond the possibilities of Copy Trading, eToro gives you access to extensive charting and analysis tools, together with live market information.

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.

These and many other tools offered on eToro are available to most users around the world. With certain restrictions pertaining mainly to the trading of CFDs, users from the EU, UK, and Australia are all accepted, together with over 100 more countries. Funding your eToro account is extremely easy, with low minimum deposits and an extensive list of supported payment methods, the platform offers accessibility, low fees, and convenience.

How does CopyTrader work?

eToro’s CopyTrader works in very much the same way as you would expect any reputable Copy Trading solution would. The process is extremely simple and can be summarised into three steps:

  1. Choose a trader – get access to a platform with over 5 million traders, giving you the opportunity to find several options based on your investment strategy and risk appetite.
  2. Set your budget – set your investment budget, which will then be invested in proportion to the trader’s strategy.
  3. Start copying – start the Copy Trading process with your selected budget.

When using eToro CopyTrader you remain in control of your capital. You can stop or pause investment whenever you want, and you can also choose to increase or decrease capital whenever you wish. Another important benefit of using this over another Copy Trading option is that you can choose between one and 100 traders to copy simultaneously.

eToro - Copy Trading Portfolios
Screenshots are shown for illustration purposes only. Actual product may vary.

Apart from copying individual traders whom you need to select yourself, eToro offers a premium product which offers additional features and benefits. CopyPortfolios lets you get the most out of Copy Trading with the following portfolio:

  • Top Trader – includes the best performing traders on eToro
  • Market – combines a thoroughly researched mix of CFD commodities, ETFs or stocks
  • Partner – portfolios created by eToro’s partners, namely Tipranks (develops stock analyst software), WeSave (a robo-advisor), and Meitav Dash (massive investment house)

Through CopyPortfolios investors can minimise their risk by diversifying their investments, whilst also taking full advantage of market opportunities. Each portfolio is re-balanced based upon continual market analysis and thematic strategies. Just like with eToro’s CopyTrader, when investing through CopyPortfolios, each trade value is made proportionate to the allocated funds.

In order to experience the full features of Copy Trading without risking any money, eToro offers you a demo account with a balance of $100,000 which you can use to trade. This gives you a superb opportunity to copy different traders and develop the right investment strategy, whilst also getting used to the management interface and the platform as a whole.

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.

How to Find the Best Trades to Copy

eToro CopyTrader is very easy to use, especially when searching for traders to copy. Once you have created an eToro account, you can visit the ‘Copy People’ section located on the left-hand side of your dashboard. You will be presented with hundreds of possible traders to copy, which can be quite overwhelming. Fortunately, eToro offers a variety of filter options to help you select traders which closely match your investment strategy.

So what are copy trades filters? For an investor, looking at the most important ones should be Market, Track Record, and Risk Score.

  • Markets – Not all traders invest in all markets, so you need to find traders who specialise in the market or markets which you intend to invest in. eToro lets you use CopyTrader across all of its markets, which include cryptocurrencies, commodities, and stocks.
  • Track record – Two very important filter options relate to the trader’s track record. One filter, titled ‘GAINED AT LEAST’ let you select the amount of minimum profit a trader makes. The second filter, titled ‘DURING THE’ sets the time period in which the indicated minimum profit was achieved.
  • Risk score – Every trader is scored based on their investment history. Traders who score between 0-2 are considered to take low risks, those who score between 3 and 6 are considered to take medium risks, whereas those who score above 6 are considered to be higher risk-takers. The algorithm used to establish a trader’s risk score has been developed by eToro and you can find further information about it here.

If you are new to Copy Trading you should ideally start by looking for traders who have 12 months or more of experience, as these can provide the most significant track records. It is generally better to opt for traders who deliver consistent results, even if these are sometimes small. Through eToro’s social platform, you will be able to see the number of investors using each trader with real money. The more investors are linked to one trader, the higher the likelihood that he or she is delivering results.

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.

FAQs

What does copy trading cost?

There are no extra costs associated with using eToro CopyTrader. You only pay the same fees which you would otherwise pay when making individual trades. The same goes for CopyPortfolios, where the main fees are just the spreads of underlying transactions.

Is there a minimum amount?

The minimum capital to start Copy Trading is $200 whilst the maximum is $2,000,000. To start a CopyPortfolios you will need a minimum investment of $5,000.

Can others copy me?

Traders present on eToro CopyTrader are individuals just like you, and the platform is constantly looking for new traders to join the platform. Through their Popular Investor program, you can get paid to be copied, joining the ranks of eToro’s leading traders. You can find more information on this program on our detailed eToro review.

Concluding Thoughts

eToro CopyTrader and CopyPortfolios are great tools to help you make sound investment decisions, even when you lack the time or experience to do them yourself. Since they are both free to use, with relatively accessible minimums, and with access to a demo account, every trader should try them out in order to properly understand their benefits.

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.

Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.k.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.

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