What is Copy Trading

There are people who spend time to do research on market performance. Then there are a few others who take help of professional advisors to handle their portfolios. But if you have heard about autopilot income generating system, or used it then Copy trading might be of interest to you. 

For the new investors, this tool could be particularly useful. 

All about Copy Trading:

Meaning-It is a process of copying the trade of others. Be it the trading styles, actions etc. You can completely copy the market behavior or pattern of others in your demat account. There are Application Programming Interfaces to help you and just by clicking a button, you can copy it automatically. It is the same as taking someone as your mentor. We often get inspired by or follow people in study, career, profession, business etc. By following them, you try to get an idea of what and how they are doing. It is always inspiring to track those whom we take as our idols. Copy trading is something like that only. The expert or knowledgeable traders are copied for their actions. 

There are trading platforms which provide the facilities of Copy Trading. It is also known as social trading. one can learn a lot about stock trading by Copy Trading. 

Types of Copy Trading 

Automatic Copy-The entire trade and portfolio get copied automatically. Trades are executed on their own. The transactions are carried out in the autopilot mode in an uninterrupted way. 

Manual Copy-Under this method, trades can be copied manually and selectively. However due to the manual changes the outcome will be different.

Free Service-The tips are shared like stock market tips under this method. But it comes with a risk. 

Paid Service-It works on a subscription basis. The payment is on a monthly or an annual basis. Trading strategies that earn higher returns are suggested by expert trades under this method. 

The mechanism of Copy Trading

• Open an account at trading platforms providing these kinds of services. 
• These platforms allow an option to follow other traders. It is not chargeable just like open trading. But a few APIs work on a subscription basis to get trade details from them.
• The transaction history can be copied entirely, or it can be as per the settings, putting a limit on the number of daily transactions. 
• Copy trading options are not compulsory once you set them in your account. You can cancel them anytime.

Is Copy Trading advisable?

It depends on how much research you can do. Stock market trading needs some knowledge regarding its functionalities. There is a term called mirror trading, which shall be discussed next in this article. New investors can learn from it and gradually start making changes in the copied version. The returns will vary due to the manual changes made but with experience the risk and return relationship will come naturally to you. Any expert will not share his/her experience for free. So, the free options are mostly standardized one and for better tactics you should opt for subscription-based methods. You can start with small steps and monitor the activity. Invest small amount of money and track the performance. The tool is equally useful in case of foreign currencies and cryptocurrencies. 

Copy Trading-Mirror Trading –Algo Trading

Mirror trading is a manual mirroring of specific strategies of an individual. It is a people-based portfolio. Trade and lot selection is done by the individual and trade execution is manual. Algo Trading is fully automated and works on predetermined algorithms and computerized programming. Algo Trading is totally automated and trade selection is algorithm based. It is artificial intelligence-based portfolio. Against this, Copy Trading does automatic and blind copy of opened positions and managed positions of an individual. It is a people-based portfolio which is linked with copied trading account executing trade in selected capital percentage in an auto mode. 

Advantages and disadvantages of Copy Trading

Advantages-

1. Any new trader in the stock market can use it safely. 
2. It will help to network with other traders as well. 
3. Copy Trading helps you to earn passive income. 
4. You can simply relax as there is no need to study the market movements.
5. By spending a little amount of time one can earn money in an autopilot mode. 
6. It is better than PMS where you choose traders to copy from. 
7. You can earn the same returns of an expert trader. 

Disadvantages-

1. You should gain some experience else you will fail to copy a right kind of trader. 
2. Platform and API that suits you are hard to find. 
3. To get better services you must pay a subscription.
4. To start with you need either moderate or higher capital to initiate trading. 
5. The trading is dependent on computer system and connectivity and thus is not completely automated. 
6. The risk and the return depend on the type of expert you follow. 

We can conclude that anything that comes with automation is not always easy to operate. Knowledge is still required. And risk and return follow the pattern as per your selection of Copy Trading. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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