What Is Copy Trading?
In the realm of financial markets, copy trading allows for the replication of positions executed by experienced traders onto the accounts of other investors. This approach differs from mirror trading in that the copied trader’s funds are partially transferred to the account of the copying investor.
The copy trading strategy involves two parties: the trader whose positions are being replicated, and the investor who is executing the copied trades.
- Copied Trader: As a copied trader, otherwise known as a signal provider, you are an experienced trader whose positions are being replicated by other investors through the practice of copy trading. In order to ensure the quality of the signals being provided, brokers carefully select signal providers based on stringent quality control criteria and publicly monitor their performance. As a signal provider, you are expected to meet certain criteria in order to qualify for this role and your progress will be closely monitored by the broker with whom you are affiliated.
- Copying Trader: As a copying trader, you have the opportunity to replicate the trades of a signal provider, who is typically more experienced and has a demonstrated track record of profitability. This approach can be particularly beneficial for less experienced traders seeking to leverage the knowledge and expertise of more seasoned professionals. While replicating the actions of the signal provider, you are still able to customize your own parameters and limits on copy trading strategies to align with your individual risk tolerance and investment objectives.
Any trading move the copied trader makes, the copying trader can duplicate. Examples of these actions include stop-loss orders, take-profit orders, closing or opening a position, and similar decisions. Copying traders retain the ability to disconnect from the copied trader and manage their own trades themselves, while copied investors are usually compensated through subscription fees paid by the copying investors. Sometimes, that cost is covered by the broker, which means that copying traders can access this service for free.
Copy trading has led to the development of social trading investment portfolios, sometimes called signal portfolios or people-based portfolios. In a people-based portfolio, investment funds are invested not only in traditional market-based instruments, but in other investors, too. As social trading continues to evolve, people-based portfolios will become more widespread throughout the industry.
What Is The Best Copy Trading Platform In The U.K.?
When attempting to find the best copy trading platform for your trading needs, consider the following features:
- Regulation: Always ensure that the broker you choose is regulated by a reputable governmental organization. In the U.K., brokers are almost always regulated by the Financial Conduct Authority.
- Trading Platform: Know whether you will be using proprietary copy trading software from the broker or a platform such as Duplitrade or Myfxbook. Whether a signal service is proprietary or third-party can have an impact on the fees you pay.
- Quality Traders To Copy: A broker should have a number of high-quality traders available for copy. You should be able to choose from a wide range of traders with proven success records, publicized data to back up their experience, and different skills and qualities.
- Flexibility In Parameters: You should be able to set your parameters for copy trading, as you may only want to copy certain actions and orders from the signal providers you follow. Being able to set your own restrictions and permissions on copy trading provides important flexibility and customisation.
- Binding Period: If you don’t want to copy trade, you shouldn’t have to. If the broker you choose attempts to bind you to a copy trading provider, that institution might not be a good choice. Copy trading should always be optional.
- Fees: Subscription, flat, and profit-based fees are all common with copy trading. You want a broker that is fair with their fees, not charging exorbitant amounts that eat into your profits.
With those features in mind, there are two brokers that stand out when it comes to copy trading in the U.K.: FP Markets and Avatrade.
FP Markets
Highlight: Best MetaTrader Execution
FP Markets is a leading no-dealing desk broker. FP Markets offers trading on the MetaTrader 4 and MetaTrader 5 platforms, and it is known for its low-latency, quick execution. Within the MT4 platform is a built-in, trader-centric copy trading functionality.
You can also access copy trading through a third-party provider, the ever-popular Myfxbook Autotrade. FP Markets definitively answers the question of how to copy trade on MT4 with this third-party auto-trading platform. Myfxbook Autotrade provides traders with a user-friendly interface, allowing them to follow and automatically copy the forex trades of experienced traders.
For those who want something proprietary, FP Markets recently expanded to include FP Markets Copy Trading, its own copy service, in its tool selection. FP Markets Copy Trading lets traders find, copy, and follow proven-successful copy forex trading providers without having to build their own trading strategies or do their own research.
FP Markets’ signal providers are useful for those who are interested in the financial industry, but do not yet have the knowledge to form their own strategies. They can form copy trading strategies instead with FP’s flexible service. Social traders working with FP Markets can diversify their portfolios by copying multiple signal providers, all of whom trade a variety of instruments.
AvaTrade
Highlight: Excellent AvaSocial App For Mobile Traders
AvaTrade is a top-tier global CFD market-maker with excellent oversight and regulation. Its traders can trade multiple assets, including Forex, cryptocurrencies, options, bonds, ETFs, and more, all from a commission-free account. AvaTrade supports leading trading platforms like MetaTrader 4 and 5, and it also has its own copy-trading app called AvaSocial.
The AvaSocial app lets beginning traders discover mentors and successful traders. On the app, copied traders display their trading style, risk profile, and details about their experience within the industry. As a copy trader, you do not need to pay fees or commissions to trade on the AvaSocial app.
Additionally, AvatTade works with ZuluTrade and Mirror Trader to provide even more copy trading functionality. Mirror Trader lets investors switch between semi-automatic, manual, and automatic trading when they are following a signal provider. ZuluTrade’s main highlight is that it allows its clients to copy top performing traders from other brokers. AvaTrade’s AvaSocial app, combined with its access to ZuluTrade and Mirror Trader, make this broker an excellent option for those who want to copy trade on-the-go.
What Is The Best Crypto Copy Trading Platform In The U.K.?
Cryptocurrency is a form of decentralised digital currency that operates through independent computer networks. Many traders prefer to buy and sell this asset, as it is private, inflation-proof, and unlinked to governmental organizations. As time goes on, crypto is slowly becoming more accepted in the mainstream.
For traders who want to engage in crypto copy trading, here are two of the best platforms in the U.K.: eToro and FXTM.
eToro
Highlight: Known For Being Beginner-Friendly
eToro is one of the best copy trading platforms in the U.K., and it allows its traders to choose from a wide range of assets, including cryptocurrencies like Bitcoin and Ethereum. eToro is a multi-asset platform, but it has a reputation in the industry for being very beginner-friendly.
According to eToro, CopyTrader is its “most iconic feature.” CopyTrader, a proprietary platform, lets traders choose from signal providers with successful track records. Signal providers, including those who are copy trading crypto, are chosen based on their return rate, strategy, risk score, and number of copiers. You can filter through providers based on these criteria, and, once you choose a trader, you can set an amount that you want to trade. The minimum required for copy trading at eToro is $200.
FXTM
Highlight: Highly-Regulated
FXTM is regulated by multiple organisations, including CySEC, the FCA, FCSA, and FSC. It is beginner-friendly, and, at FXTM, you can choose to trade Bitcoin, Litecoin, and Ethereum CFDs, three of the world’s most popular coins. Crypto trading is available 24 hours a day, five days a week.
At FXTM, you can choose a copy trading manager from a list displayed by the broker. The broker first presents traders with copy trading strategy suppliers who are highly-ranked within the FXTM system. You can also choose a trader to copy based on four criteria: all-time run, days open, managed funds, and risk level. Those seeking more information on how to copy trade crypto will also like this broker, as it offers a wide range of educational tools.
Is Copy Trading Profitable?
Trading in financial markets carries inherent risks and there is no guarantee of profit. This is also true for copy trading, which can involve the same risks as regular trading, including the potential for loss of capital. It is uncommon to achieve high annual returns without taking on significant risk and relying on luck. Copy trading can be profitable if you are able to accurately predict which signal providers are going to be successful. That task, as you can imagine, is easier said than done.
Most platforms incentivise popular, copied traders to perform well, and, often, brokers reward these traders for increasing their follower count. Every signal provider is out to make a profit, and they are backed by a proven record of success and a desire to increase their incentives. Copy trading stands as good a chance as any strategy at being successful in the volatile financial industry. Additionally, its flexibility means that, if you find that you are not profiting with this tool, you can easily find a new signal provider or change strategies to something more suitable.
Is Copy Trading Legal?
The U.K. embraces social trading, and many copy trading platforms are regulated by the well-known financial watchdog, the Financial Conduct Authority (FCA). According to the FCA, it classifies copy trading as “investment or portfolio management.” Copy and mirror trading fit in with the European MiFID Directive (an attempt to protect investors and intermediaries throughout the continent) as an “automatic extension of trade signals.” This service falls under Article 4, Section 1(9) of MiFID, making it well within the parameters of the law. Legality is not an issue with copy trading, so long as the brokers providing this service are regulated.
Pros And Cons Of Copy Trading
The pros and cons of copy trading vary, and whether you will choose this strategy depends on your profile as a trader. Copy trading is best-suited to beginners, as it requires little-to-no trading experience—you only need to be able to determine which signal provider is best for your goals. Additionally, traders without the time to devote to market research (i.e. those for whom trading is not their primary career) can also benefit from this efficient signal provision service.
Some of the pros of copy trading include:
- You can invest with limited market knowledge.
- You can learn the way in which professional traders operate.
- Copy trading saves time because it automates the trading process.
- You can customise copy trades based on your needs and set your own parameters.
- Copy trading is an opportunity to diversify your investments.
- Conversely, you can work as a signal provider and earn extra money for providing this service.
There are also cons to copy trading, including:
- Though you can set parameters, you do not have actual control over trading decisions.
- Results are not guaranteed.
- Copy trading can involve a higher budget than non-copy trading.
Keep in mind the pros and cons of this service when deciding whether copy trading is right for you. The results are not guaranteed with signal provision, though copy trading can be an excellent way for industry newcomers to learn how experienced traders conduct business.
Copy trading is a strategy that allows investors to replicate the trades of experienced traders, known as signal providers. This approach can be an effective way for novice traders to diversify their portfolio and gain exposure to the expertise of more seasoned professionals. However, it is important to recognize that copy trading carries inherent risks and past performance is not indicative of future results.
As such, it is essential to carefully research and evaluate signal providers before committing to a copy trading strategy. Additionally, it is advisable to set clear parameters and limitations on copy trading activities to align with your individual risk tolerance and investment objectives.