Pros and Cons of Forex Copy Trading

Forex copy trading has become a very popular trading strategy among traders. This is as a result of various reasons, which include its potential for high liquidity, accessibility and potential for substantial profit. 

It is a known fact that forex trading in general can be daunting for beginners as it requires extensive knowledge, accurate market analysis and emotional resilience. It is for this cause that forex copy trading has emerged to bridge this gap and make trading the forex market more accessible to beginners and experienced traders alike.

Like with any other human endeavor, forex this strategy has its pros and cons. The major focus of this article is to shed light on the pros and cons of forex copy trading, providing enlightenment on the subject matter, and helping readers to make better informed decisions. Before we proceed, it is essential to have a good understanding of what this really entails. We will therefore have a quick overview of this.

What is Forex Copy Trading?  

Put simply, this is a form of social trading that allows traders to copy and replicate the trades of another experienced or expert trader. How this works is that a trader who wishes to copy another trader will link his account to that of the trader(s) being copied. This way, you’re able to copy and replicate their trades in real time. You’re able to see their strategies and moves in the market. And you can easily  make the same moves and stand the chance of making the same proportion of their profits.

Haven gotten the basic understanding of what forex copy trading entails, we can now look at the focus of this article -the pros and cons of forex copy trading.

Pros of Forex Copy Trading

Highlighted below are some of the pros of forex copy trading:

Accessibility, especially for beginners

This is one of the major benefits of forex copy trading, especially to those that are new to the forex environment.given that learning and understanding the rudiments of forex for starters can be a really daunting and challenging task. It can take a really long time for beginners to learn the basics of trading and understand movements in the market. But forex copy trading comes to the rescue by granting beginners access to the forex market by leveraging the knowledge and expertise of other experienced traders. So, instead of trying and failing, a beginner can easily copy the trades and  strategies of others. This way, he stands a chance of making profits, and also learning on the go.

Saves Time    

The traditional forex trading strategy usually demands long hours of making research, analyses, studying charts and keeping up with market trends. Forex copy trading saves traders the time that would have been otherwise spent on the above listed demands. This is even more beneficial to traders who have a full time job or some other engagements. This way, such individuals can have the time to attend to those engagements and still benefit from trading forex.

Potential for Higher Returns

Forex copy trading affords traders very high chances of getting higher returns and profits. This is very simple because you get to select traders you wish to copy. If the traders you copy are successful in their trades, chances are you also make the same success from your own end. The more successful traders you copy, the more your chances of having successful trades, thereby yielding you higher returns.

Diversification 

Given that forex copy trading allows for a trader to copy multiple traders, it can help the trader in portfolio diversification. Very often, most of the different traders that are being copied have their different strategies and approach to the market. By incorporating these different strategies, traders can create a diversified portfolio without having to manually search for trades themselves.

Learning Opportunities

Another benefit of forex copy trading is that it offers traders the opportunity to learn on the go. In the course of following and copying successful traders, one can learn from their strategies and build experience. So as a forex copy trader, you get to learn while you earn.     

Cons of Forex Copy Trading

Below are some of the cons of forex copy trading.

Fees and Extra Charges

Some of the fees charged by some copy trading platforms can actually eat into your profits overtime. Some platforms even charge a fixed commission on profits and per trade that is copied. These charges may come in different forms and can add up overtime to become enormous.

Increased Dependency

Despite the convenience associated with this trading strategy, one of its major bad sides is that it creates a level of dependency on others. It places you at the mercy of the traders you copy, making you lose your own unique touch and input in trades.

Limited Control

This is closely related to the previous point. Engaging in copy trades makes you relinquish a significant amount of control over your trades. The traders you copy exercise a greater level of control than you do. Consequently, your profits or losses are significantly dependent on the decisions they make.

Exposure to Risks 

Copy traders are not immune to risks. As a matter of fact, depending on the traders they copy, they may even be more exposed to risks. For example, if the trader being copied experiences losses in a given trade, the losses can equally be experienced by those copying his trades.  

Frequently Asked Questions 

What are the challenges of forex copy trading?

• These may include finding traders with good performance to copy, copying fees, the risk that a trader being copied may abruptly stop trading, among other challenges.

Can you lose in copy trading?

•  Incurring losses is a possible occurrence in copy trading. If the trader being copied is unsuccessful and losses, chances are, those copying him will likely face the same fate.

What are the best platforms for copy trading ?

• Some of the best rated platforms for this include eToro, AvaTrade, FP Markets, among others.