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HomeStock MarketWhat is Copy Trading? Should you go for it?

What is Copy Trading? Should you go for it?

Copy Trading – Copy Trading is becoming a popular trading option nowadays. Copy trading is the easiest and most successful method to make money from the stock market, cryptocurrency & forex platforms. This type of trading helps you to generate a regular income stream in autopilot mode without spending a lot of time researching market charts.

Sounds interesting correct!

If you are new to stock market trading, you can either learn it yourself by joining a popular trading course or you can use copy trading. 

Let’s find out further – What is Copy Trading? How does copy trading works? How copy trading is different from mirror trading? What are the Pros and Cons of Copy Trading?

copy trading

What is Copy Trading?

Copy-trading means a process of copying the trade of others. Their trading styles, actions, positions everything can be replicated in your demat account automatically with a click of a button using API (application programming interface). 

This means copy trading allows you to copy other skilled trader styles automatically in your account. In copy trade, you will earn the same profit as that of a successful trader without spending much time and energy. 

The simple analogy of copy trading in real life is – 

In any business, career, or study, you follow and copy those people, who have more knowledge, experience, and skills. You track them and learn from them instead of reinventing the wheel or guessing everything by yourself. Similarly, in copy trading, you follow and copy expert traders. 

Copy trade facility is available in almost every country including India. It is an additional service provided by many trading platforms in India like AngleOne, Aliceblue, etc.

Copy trading helps a new trader to reduce risk as well as to learn stock trading faster. Another name of copy trading is social trading.

Many employees and students are using this method nowadays to earn part-time income from the stock market, as they are occupied during market hours.

Also read – Algo Trading – Should you opt for Algo Trading?

How Copy Trading works?

  • In copy trading, you need to create an account at trading platforms that provide these types of services. 
  • On most of the platforms, you will find an option to follow other traders in free it is like open trade. While in some cases you will get trade details via API using the subscription model.
  • On these platforms, you can copy the entire transaction history of the trader or you can set the limit on the number of transactions per day. 
  • If you are not satisfied, you can cancel the copy trading service anytime with a click of a button.

There are two types of copy trading options available on these platforms – Automatic copy & Manual copy.

Automatic Copy 

Under automatic copy, the entire trade and portfolio get copied automatically, even transactions are done in the autopilot mode without any intervention. In this option, trades are executed on their own.

Manual Copy 

Under manual copy, you need to copy trade manually and selectively. In manual trading, you can make changes and expected returns will be different as changes are done in the trade.

Copy trading services are available in two types free & paid subscription-based.

Free Service 

Under free service, trades are shared openly just like stock market tips. Free copy trading service is risky in nature. 

Paid Service

Under paid subscription model, you need to pay a monthly or annual subscription fee for using these services. Subscription-based copy trade service offers exclusive trading strategies backed by expert traders that provide higher returns. 

You should have basic stock market trading knowledge before opting for these services.

Copy Trading vs Mirror Trading vs Algo Trading 

There are three popular trading styles namely copy trading, mirror trading, and algo trading. The difference between them is given below.

copy trade mirror trade algo trade difference

Pros & Cons of Copy Trading 

Pros

  • You can earn money in autopilot mode with spending limited or no time.
  • No need to do an in-depth study of complex stock market charts.
  • A viable alternative for a novice trader.
  • Comparatively safer than PMS where a selection of traders for mimicking is done by you.
  • You can earn the same return as that of an expert trader.
  • Helps to network with other traders.
  • You can make passive income using copy trading.

Cons 

  • Finding platform and API as per your suitability is difficult
  • You need to pay subscription money to avail of the services 
  • It is difficult to find expert traders for mimicking trading 
  • Although it is automatic, it is not free from dependencies such as connectivity, computer crash, etc.
  • You need moderate or higher capital to start this type of trading
  • Risky in case you fail in identifying the skilled trader

Should you go for Copy Trading?

Hopefully, by now you have got a complete idea of copy trading. 

Should you go for copy trading? Well, an answer to this question depends upon an individual’s expertise in stock market trading.

If you are a newbie you should first start from mirror trading. Where you can copy trade manually and start understanding how things operate in the stock trading. You need to observe that you can make money by mirror/manual trading.

Once you become somewhat knowledgeable with an understanding of risk and rewards in the stock market you can go for copy trading. Where you can copy other traders and make money.  

If you decide to go for copy trading, you should go for subscription-based services rather than free services.  

The main reason behind going for a subscription-based service is you get the right advice and professional services for the selection of expert traders for mimicking.

In free service you are selecting stock trader on your own and believe me, no professional trader will share his style, strategy, and position with a competitor for free. 

Make sure to create a safety net and control risk before making use of copy trading. Start with small capital and monitor trade at regular intervals to see that you are making money using copy trade.

All the best and Happy Copy Trading!

Note – Copy trading can also be used in trading with cryptocurrencies and foreign currencies. 

Shitanshu Kapadia
Shitanshu Kapadiahttps://moneyexcel.com/
Hi, I am Shitanshu Kapadia founder of moneyexcel.com. I have written 1750+ articles on this blog. I am PGDBA(marketing), engaged in blogging for 5 years. Moneyexcel blog is ranked as one of the Top 10 Personal Finance Blog in India. The purpose of this blog is to spread financial awareness and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion.
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