Copy forex trading is a forex trading strategy that permits forex traders to mirror the trades of experienced and successful forex traders. This forex trading strategy helps beginners or less experienced forex traders to avoid making emotion-based trading decisions that can lead to a massive loss. In copy forex trading, Forex traders make use of brokerage’s trading platforms or software to examine histories and details of different forex trading strategies conducted by renowned forex traders. At this point, the forex trader selects an algorithmic forex trading strategy from the list of available strategy based on his/her investment goal, currency pair being traded, risk tolerance and trading capital.
Given for example, if a forex trader has a low-risk trading tolerance, he or she may decide to copy a forex trading strategy that has a decreased drawdown. At this rate, when forex trading strategy developers carry out their trades, the trades are reproduced in a copy trader’s account with the use of an automated trading software that functions at every trading hour with the sole purpose of replicating similar results.
ADVANTAGES OF COPY FOREX TRADING
The fact that copy forex trading determines every aspect of a forex trade like when a trade gets opened when a trade is closed and when a trade is amended, removes or minimizes the stress of making trade decisions by forex traders. This aspect of copy forex trading is very helpful to forex trade beginners who find the forex market overwhelming. As an alternative for going through the difficulty of checking the forex market’s day to day fluctuations, all that is needed is to simply examine the performance of his/her copy trading account at the end of every trading section in other to determine if they want to keep trading with the strategy.
Most forex brokers that provide forex traders with copy forex trading usually test, validate and examine the trading result of strategies they update in their platforms or trading software that helps in the identification and filtering out of losing trades. For example, before the acceptance of a new forex trading strategy, a forex broker will subject it to have a twelve months track record of effectiveness with a precise maximum drawdown limit. In the process of selecting a forex broker for copy forex trading, a forex trader should have a detailed record of how the strategy’s results have been tested and verified.
DISADVANTAGES OF COPY FOREX TRADING
ROBUSTNESS OF STRATEGIES
Most copy forex trading strategies have the tendency of producing great results only under certain market conditions. For instance, a forex trading strategy may perform well in trending forex market conditions but perform badly in a range bound market condition. Therefore, forex traders will need to carry out various tests on the result of the trading strategy in a good number of market environments in other to ascertain its productivity and effectiveness.
Even though it is not difficult to know if a copy forex trading account is producing profits, it is most times more difficult to determine the set of risks that were taken to make the desired profits. For instance, a forex trading strategy that has made 400 percent profit over the past 12 months may sound incredible at first but further investigation of the strategy may show that in other to reach the profit target, the forex trader would have had to undertake an 80 percent drawdown on his/her capital. Every forex trader should make sure the strategy utilized in copy forex trading has a minimum percentage of risk involved.
SUCCESS IS NOT GUARANTEED
No forex trading strategy is a 100 percent or a sure shot winner. For instance, a copy forex trader may have to trade with a particular forex trading strategy for a good number of years and this may involve the fact that all trades must not be successful. For example, trading forex with value stocks takes a very long time to turn around and losing endurance or letting go of the strategy may cause great losses.
TOO MANY COPY FOREX TRADERS
In copy forex trading, they are a lot of forex traders who use and search for forex brokers that offer copy forex trading. Given the number of forex copy traders and the rapid dissemination of information, a little late attempt to copy a particular trade is seen as a huge disadvantage.
In conclusion, although copy forex trading has its risks and drawbacks, following simple trade measures like following successful forex traders, having patience, proper validation and test of forex trading strategy results, diversifying with a good number of forex trading sectors and conducting personal due diligence and carefulness can help a forex trader become a perfect copy forex trader and increase his/her chances of profit maximization and increase.