If you’re a CFD trader, you’ve probably heard of copy trading and you might be keen to give it a go. But can you really make money by doing copy trading?
It probably seems to good to be true. You find a successful professional trader, set aside a pot of money, set up your account to copy them and then come back to a stack of profit. Simple right? Well, it isn’t that simple and copy trading does come with as many risks as CFD trading. But, done right, it can be a very useful strategy to invest and diversify your strategy, no matter where you’re at in your trading career.
With this in mind, there are several techniques that you can use to spread your bets and maximise returns. One of the most popular copy trading platforms is eToro. You can check the profiles of thousands of traders and set up your trades easily.
Social trading takes the strain
Wherever you are in your trading path, using a social trading tool like eToro is a good way to get an insight into how other people trade. Obviosuly everyone is different and some people will trade in a wildly different way to you. And that’s one of the good things about social trading and copy trading. I’ve learnt a lot just by watching what someone else does with my money. Sometimes its useful, sometimes it really isn’t.
I highly recommend using some kind of copy trading tool as part of your diversification strategy. You shouldn’t completely rely on it though, or at least I personally wouldn’t. Use it to compliment your own trading approach. On a good day it can make you money when you lose, but on another day you’ll be up but your copy trades might be down. It’s swings and roundabouts.
How to find a good profile
One of the most time consuming, and worrying parts of copy trading, is choosing the right investor. I like to choose a couple, normally two or three, depending how much money I’m investing. I normally only use around $500-1000 on copy trading but I’ll split that between a couple of traders.
But who to put your money on?
Always choose a trader with at least 6 months, or ideally 1 years experience. You don’t want to be betting on the rookie…
Look carefully at the stats. Really you want someone making more than 3% profit a month, ideally 5% or higher. I’ll normally aim for the 5% guys and higher but sometimes take a punt on a 3% guy if it just looks like he’s been having a bad time lately. There’s gotta be an up soon eh. Sometimes that works well.
Make sure the guy is MyFX book verified and has a real profile. Not some robot looking random account.
Check that the guy you’re looking at copying isn’t just copying other people. You can peek at the their profile to see if they made money by direct trading (ie: trades he himself has placed) or by other means such as copy trades. That’s fine, but you don’t wanna be copying a copier!
Take a look at their trades and see if there is any strange activity, like un-closed trades that appear to be losing a lot. Some traders keep bad trades open to hide the stats. Check under their portfolio and see if there are old trades that are still open… If there are, walk away.
Set Stop Losses
I mean this is obvious right? You’re always going to set up stop losses, so yeah… You can either copy the trader, or set your own stop loss limits. What you choose to set it at is up to you, but I normally allow something like a 20 pip stop loss if I’m doing trailing stop losses. On eToro you can just copy the traders stop loss activity too, so if you trust the trader enough, go with the flow.
If you’re trading on mobile (which you really should be) then make sure to check in throughout the day to keep an eye on any trades and make sure things are going to plan.
Myself, I trade Crypto, so I like to use eToro to play the other markets. You can trade forex, indices and all sorts of CFDs which gives you a great opportunity to maximise your exposure to other markets. And by choosing a range of traders you’ll be able to spread the risk and benefit from movements whatever happens.
Remember though, trading isn’t a quick fix solution. Can you make money by copy trading? Absolutely.
How much can you stand to make? That depends on your capacity for risk, your choice of traders and the even your markets. I’d say if you’re not seeing a 10% return after a couple of months of copy trading you’ll need to take stock of your approach and see what you can improve. Look, you’re not going to be a millionaire by playing with a couple hundred or even a thousand dollars, but you can certainly make the most of that money and earn more than if it was sat in the bank!
I think eToro is an excellent tool and one that can really maximise your trading experience and even make you a nice additional income if you play it right.