What is copy trading or social trading?

Social trading is a form of investing in which you (as a so-called “follower”) can view, discuss and replicate the investment strategies or portfolios of other members of a social network.

1. How does copy trading work?
Copy trading in the test works with all common financial instruments such as CFDs, funds, shares, binary options and forex. Put simply, investors, also known as social traders or followers, adopt the trading strategies of successful lead traders in whole or in part. These are experienced traders who share their knowledge with the mostly less experienced social traders and are therefore also called popular investors or, depending on the type of copy trading, signal providers. The securities account of these lead traders is also referred to as a sample securities account. A copy function is used to transfer the securities from the sample securities account to the trader’s own securities account. How this works in detail depends on the trading platform of the selected provider. The great advantage for beginners is that they benefit from the knowledge of the lead traders and thus also from their chances of winning. Copy trading in the test is already possible with low capital investments. However, how high these turn out depends on the copied trading strategies.

2. What types of copy trading are there?
Under the generic term copy trading, different types are summarized in the test. However, they all have one thing in common: Traders copy investment strategies from other, experienced traders who have already proven their worth when it comes to investing. However, this type of trading is not that new, because resourceful investors have been taking advantage of the investment decisions of well-known investors such as Warren Buffet for many years. However, this procedure is more complicated than trading via a corresponding trading platform, with which traders (followers) can adopt investment strategies from other traders (lead traders, signal providers) into their own portfolios with just a few clicks. The biggest advantage of copy trading in the test is not only the easy adoption of selected trading strategies, but also the wide range on the market.

3.Copy Trading Costs? This is how copy trading providers are compared
Traders should not only compare providers, but also be critical of their own expectations. Only those who approach copy trading with the right attitude, patience and above all without false expectations can be successful in the long term. The best copy trading provider is useless if your own expectations do not match the respective offer. It is therefore important not to blindly copy successful trading strategies from so-called top traders. Traders who carry out a detailed comparison are repeatedly referred to this point by reputable providers in the test.

Even those who rely on experienced traders and benefit from this knowledge cannot do without their own background knowledge. Therefore, anyone who is interested in copy trading should first deal with this topic in detail and with the topics of financial investments and financial markets in general in a test. Most well-known brokers provide detailed information about online trading on their homepages. This information provides a good orientation. Most brokers supplement this general information offer with further training opportunities such as webinars and information offers specialized on certain topics.

3.1 Demo Account
A demo account in the copy trading comparison is particularly welcome. This test account equipped with virtual capital gives social traders the opportunity to test the trading platform and the offer of the selected provider. A well-equipped demo account offers all the features of the live account, so beginners can get acquainted with copy trading without the risk of losing real capital. This danger should not be underestimated, especially at the beginning, because even a mistake due to ignorance can lead to a copy trade making losses. The demo account in the test also offers the opportunity to compare lead traders and their strategies and get to know them better.

However, even experienced traders like to use a demo account, for example when they have just changed providers. For these investors, too, the opportunity to safely test lead traders and their investment strategies is a pleasant side effect.

3.2 Top Trader Selection
They invest a lot of time and money in the corresponding copy trades and are also willing and able to accept higher losses. Traders who do not have these requirements, but still decide to copy these professional but risky investment strategies, will soon fail at copy trading due to high losses. Negative empirical values ​​can often be read in the tests, which are attributed to the respective providers and the corresponding trading platform. However, this is not correct, because high losses are usually due to traders with wrong and too high expectations, such as copying unsuitable investment strategies.

3.3 Portfolio diversification
Experienced providers offer a wide range of tradable financial instruments or act as intermediaries between traders and lead traders who set up proven trading strategies. According to the test, however, the diversification, i.e. the broad spread of risk in one’s own portfolio, is always up to the traders themselves. In order to balance profits with losses in the long term in such a way that the bottom line is still a decent sum for the traders, a well-considered diversification of one’s own portfolio is essential Portfolio essential. Traders should therefore always invest in different assets, markets and trading strategies that are available from well-established and experienced providers.

3.4 Opportunity for optimal risk management
Providers offer traders the possibility of optimal risk management. Traders not only need to know how much capital to invest in which investment strategies, but also how to limit losses and take profits. In order to achieve this goal, traders have to deal with the topics of stop loss (loss limitation), trailing stop loss (profit protection), leverage (leverage) and position sizes in a copy trading comparison.

4. When does the deal/change in Copy Trading pay off?
Traders must also be aware that copy trading is always associated with a certain risk of loss, because even the most experienced trader cannot always realize profits in comparison. Anyone who adopts trading strategies from top traders not only takes on the profits, but also the losses. Anyone who invests money that is not needed to cover living expenses and is aware of the points mentioned above should give copy trading a chance.

5. What should I look out for when entering into Copy Trading?
Signing up with a provider or changing providers always pays off when traders find that the offer fits their own requirements and expectations. However, traders should compare the respective providers. Copy trading platforms with a community that gives the impression of good knowledge of copy trading at first glance should definitely be considered test winners. Combined with experienced top traders, who not only provide high-risk trading strategies geared towards high profits, a finally positive picture emerges.

Nevertheless, traders must question their own knowledge and test the offered trading strategies before they are included in their own portfolio. Based on the profiles of the users and top traders, it can be guessed whether the selected trading platform is aimed more at beginners and traders with average trading knowledge or whether the target group is more well capitalized and experienced traders.

Source: https://www.rtl. en/compare/other-topics/copy-trading-test/