There are two main types of copy trading strategies, automated and manual.
Copy trading is becoming a popular way for both beginners and experienced traders to engage in Forex without needing to be experts themselves.
You copy the trades of professional traders, allowing you to make money even if you’re new to trading.
Understanding the differences between these two strategies can help you decide which one suits your goals, lifestyle, and experience level.
In this comprehensive guide, we’ll look into copy trading, and automated and manual strategies, explaining everything in simple terms to ensure you understand each approach fully.
What is Copy Trading?
Before we compare the automated and manual strategies, let’s first understand what copy trading is.
Copy trading allows you to copy the trades made by successful traders in real time. When the trader you copy buys or sells an asset, your account will automatically do the same, in the same proportion.
For example, if a trader buys 10 shares of a stock, and you’ve copied that trader, your account will buy the same 10 shares at the same time.
It has made it easier for beginners to enter the market by reducing the need for complex analysis or decision-making.
Now, let’s move on to the main subject: automated and manual copy trading strategies.
Automated Copy Trading Strategy
Automated copy trading is a hands-off approach. Once you select a trader to copy, everything happens automatically.
The system will copy every trade the professional trader makes, placing the same trades in your account, without requiring your intervention.
This is ideal for people who don’t have time to monitor the markets but want to participate in trading.
How Automated Copy Trading Works
In automated copy trading, a trading platform provides the technology to replicate another trader’s actions.
You only need to choose which professional trader or strategy you want to follow.
Once this is done, the platform will automatically execute trades in your account, following the actions of the trader you’re copying.
This is how it works:
1. Choose a Trader
On copy trading platforms, you’ll see a list of professional traders you can copy. You can filter these traders based on factors like their trading style, performance, and risk level.
2. Set Up Automated Copying
Once you select a trader, you can decide how much of your capital you want to allocate to copying that trader.
3. Automatic Copying
After setup, every time the chosen trader opens or closes a trade, the platform will automatically copy that action to your account.
Advantages of Automated Copy Trading
What makes Automated copy trading strategies important are:
1. Hands-Off Approach
Automated copy trading is ideal if you don’t have the time or desire to actively manage your trades. The system takes care of everything for you.
2. Time-Saving
Once you set it up, the process runs without requiring your constant attention, which is helpful for people with busy lives.
3. No Need for Expertise
Even if you know nothing about trading, you can still participate and potentially earn profits by copying a successful trader.
4. Emotion-Free Trading
Automated copy trading removes the emotional element of trading, which can lead to poor decision-making when you trade manually.
Disadvantages of Automated Copy Trading
In as much as it has benefits, it also has drawbacks, and they are as follows:
1. Less Control
You have no direct control over the trades being made in your account. If the trader you copy takes a loss, so do you.
2. Reliance on Other Traders
The success of your investments depends entirely on the trader you copy. If they make poor decisions, it could hurt your portfolio.
3. Fees
Some copy trading platforms charge fees for automated copying, which could reduce your profits.
Manual Copy Trading Strategy
Manual copy trading, unlike automated copy trading, requires more active involvement.
With manual copy trading, you still copy other traders, but instead of everything happening automatically, you need to decide when and how to copy the trades.
This means you have more control over the trades being made in your account.
How Manual Copy Trading Works
With manual copy trading, you follow a trader and, when they make a trade, you decide whether or not to copy it.
You can adjust the trade by choosing how much capital to allocate, timing the entry or exit, or deciding if you want to make a similar trade at all.
This is how manual copy trading works:
1. Choose a Trader
You still choose a trader whose strategy you want to follow.
2. Monitor Their Trades
When the trader opens a position, you will be notified.
3. Decide to Copy or Not
You then decide whether you want to copy the trade, adjust the trade size, or even skip it.
4. Execute the Trade
If you decide to copy, you manually open the same trade in your account.
Advantages of Manual Copy Trading
- You have full control over when and how to copy trades. You can skip trades or adjust them based on your judgment.
- You can choose to copy just one trade or several trades from multiple traders at once.
- You can decide how much risk you’re willing to take on each trade. This helps you manage your capital more effectively.
Disadvantages of Manual Copy Trading
- Time-Consuming: You need to monitor the trades of the trader you’re following regularly. If you miss a trade, you may miss an opportunity.
- Unlike automated copy trading, manual copy trading can be affected by emotions. If you panic or second-guess a trader’s decision, it may negatively impact your performance.
- While you don’t need to be an expert, manual copy trading requires a bit more understanding of how markets work to make informed decisions.
Differences Between Automated and Manual Copy Trading
1. Control and Involvement
Automated: You don’t have to do anything once you’ve set up your account. Everything is done for you.
Manual: You make the final decision about whether or not to copy the trader’s moves. It requires more time and involvement.
2. Time Commitment
Automated: Minimal time commitment. Once you choose the trader to copy, the system handles the rest.
Manual: Requires more time as you need to monitor trades and decide whether to copy them.
3. Risk and Flexibility
Automated: Less flexibility, as you rely entirely on the trader’s decisions. If they make a poor choice, you’ll be affected.
Manual: More flexibility, as you control the risk and can skip trades or change the amount invested.
4. Skill Level Needed
Automated: Requires less knowledge and skill since the platform takes care of the trading for you.
Manual: You need to understand the trader’s strategy and decide whether their moves align with your goals.
How to Choose the Best Copy Trading Strategy for You
1. Your Time Availability
If you have little time to monitor the markets or make decisions, automated copy trading might be the best choice.
It offers a hands-off approach, so you don’t have to worry about missing opportunities. On the other hand, if you have time and prefer a more active role in your trades, manual copy trading could be more suitable.
2. Risk Tolerance
If you are risk-averse and want more control over your trades, manual copy trading gives you the flexibility to manage risk.
Automated trading, while less time-consuming, can expose you to more risk since you can’t intervene in the trades.
3. Your Understanding of the Market
For beginners, automated copy trading is easier to start because it requires minimal understanding of the markets.
If you’re comfortable with some basic market knowledge and want to learn more actively, manual copy trading will allow you to gain experience while controlling your trades.
Frequently Asked Questions
1. What is the best strategy for beginners, automated or manual copy trading?
For beginners, automated copy trading is often the best option. It allows you to copy the trades of experienced traders without needing to make decisions on your own.
You can start by observing and learning from these traders before becoming more involved in manual trading.
2. How much money do I need to start copy trading?
The amount of money needed depends on the platform you choose and the trader you wish to copy.
Some platforms allow you to start with a small amount, like $50 or $100, while others may require more.
Always check the minimum deposit and investment requirements before getting started.
3. Can I lose money with copy trading?
Yes, like any form of investing, copy trading involves risks. Even though you’re copying experienced traders, market conditions can change unpredictably, and there’s no guarantee of profits.
Always ensure you’re comfortable with the level of risk before committing.
4. Is copy trading completely automated, or can I make changes?
Copy trading can be both automated and manual, depending on the strategy you choose.
Automated copy trading does everything for you, while manual copy trading allows you to intervene and make adjustments to your trades if you wish.
Conclusion
Copy trading, automated vs manual strategies both offer their own unique advantages and challenges.
Automated copy trading is ideal for those who want a passive investment approach, while manual copy trading offers more control and flexibility.
Deciding which strategy is best for you depends on your time, risk tolerance, and how involved you want to be in the trading process.