What is copy trading?
Copy trading is exactly what it sounds like. Traders choose a prominent trading figure and study their trading moves so they can copy them and, hopefully, reap the rewards.
Key takeaways
Copy trading allows inexperienced traders to replicate the moves of prominent trading figures through social trading networks, enabling them to make trading decisions without conducting their own research.
Copy trading platforms typically charge service fees on users' capital, while popular investors known as signal providers often receive commission on trades made by their followers.
Despite being marketed as a quick and easy way to make money, copy trading requires careful selection and research of traders to copy to avoid losses.
Copying popular traders without proper due diligence carries significant risks, as evidenced by followers of fund manager Bill Miller who suffered losses after his decline from 2006.
Where have you heard about copy trading?
You might have seen more and more copy trading accounts popping up online. Adverts are usually targeted towards inexperienced or beginner traders with little or no knowledge of the financial market.
What you need to know about copy trading.
Copy trading is often done through a social trading network, a web-based database of information that inexperienced traders use to make trading decisions without having to do the research. Some copy trading sites enforce service charges on a user's capital. Popular investors or 'signal providers' - the traders people want to copy - often receive commission on trades made by their followers.
Despite its selling point - a quick and easy way of making money - you still need to be savvy about who you choose to copy. You can easily make a loss if you copy a trader who appears popular on a site without doing research. And there's always unprecedented risks. People who copied fund manager Bill Miller, for example, would have made losses after his decline from 2006.
Find out more about copy trading.
Although they share similar concepts, copy trading and mirror trading have distinct differences. Read our guide to mirror trading here.