Copy Trading Advantages and Disadvantages

 


Copying the trades of one trading account to other trading accounts is called Copy Trading. This is done by using APIs. Using copy trading, one can easily copy the trades in multiple accounts as well. Copy my trades refers to the process of allowing other traders to replicate or mirror your trades automatically. It is a type of social trading copy traders can follow and automatically copy the trades of another trader. Copy trading will allow you to receive automated signals from a signal provider and copy them into your trading or demat account even when you are not available at the system.

You can use the copy trading feature to trade in almost every market, such as stocks, forex, etc. Copy trading is also considered an advanced version of social trading stocks. Online platforms in social trading websites allow traders to connect, share information, and follow the trades of other traders in real-time. There are several advantages and disadvantages of copy trading that you can consider while opting for copy trading.

 Pros and cons of copy trading

Advantages of Copy Trading 

There are a lot of benefits to copy trading, particularly for new traders or those who wish to dabble in trading without making it their full-time profession. Traders with greater experience, though, can also profit from it. The following are a few benefits of copy trading:

  • Accessibility: Copy trading is ideal for inexperienced traders because it doesn't require any prior trading knowledge.
  • Access to another trader's expertise. By copy trading, you can profit from the experience and understanding of someone who has been in the market longer than you have.
  • Learning from more experienced traders. You may broaden your understanding of markets and learn more by seeing more knowledgeable traders.
  • Diversification of portfolio. You can access a multitude of markets and trading styles by using the signals provided by a diverse group of traders for copy trading. Even experienced traders can benefit from copy trading because it gives them access to markets they are unfamiliar with or lack expertise in.
  • Copy trading helps you to free up time. You can take part in copy trading even if you have a day job because it can be done entirely automatically. Alternatively, you may spend your leisure time studying markets. It might also be devoted to your social life or hobbies.
  • It removes emotions from trading. Emotions can cause irrational and poor deals; thus, it can be difficult to control them when you are risking your own money. This problem is solved with copy trading, since automated trading prevents your feelings from influencing outcomes.
  • Signal providers can earn additional money from trades. In addition to trading as a signal provider, expert traders can also profit from copy trading. When you let other traders imitate your deals, you can increase your profits exponentially.


Disadvantages of Copy Trading

You should be informed of the risks and drawbacks associated with copy trading, despite its potential for success. By diversifying your holdings and avoiding putting all of your money in one trader, you can reduce risk. If the copy trading platform permits it, you can also customize the risk criteria on the platform to suit your needs. When determining whether or not to emulate other traders, take into account the following points:


  • Less control: By following other traders mindlessly, copy trading—especially automated copy trading—removes you from control over your money.
  • Limited learning potential. Observing more seasoned traders can teach you a few things, but the amount of knowledge you can pick up is rather small. Determining the reason behind the trader you are imitating's actions and trade results might be challenging if you are not familiar with the markets. When it comes to learning how to trade, nothing matches firsthand experience, and copy trading just does not permit this.
  • Market risk. The trader who was winning yesterday could be losing money tomorrow because markets are unpredictable. Never forget that past success does not guarantee future success.
  • Liquidity risk. It is sometimes not possible to execute your trade at the exact same price as the trade you are duplicating, if at all. Market circumstances may change before your trade is executed, which might occur due to the latency between the original transaction and the replicating transaction. Furthermore, if no one is willing to buy or sell an asset, neither can you sell it. Mostly when dealing with illiquid assets like low-cap equities or exotic currency pairs, there is a risk involved. Copy traders who are active in well-known marketplaces to minimize this danger. It is quite rare, for instance, that you won't be able to locate a seller or a buyer for EUR/USD.
  • Systematic risk. . It covers geopolitical developments as well as other uncommon or singular occurrences that are difficult or impossible to forecast but have the potential to impact markets. For instance, the EUR/CHF currency pair had a significant decline when the Swiss National Bank abandoned the euro-franc peg back in 2015. You should understand that even an otherwise successful trader may experience losses as a result of such occurrences.
  • Copy trading can be expensive. Compared to normal trading, copy trading is frequently more expensive. Signal providers may demand a substantial advance payment. Or they could charge you a commission for each transaction you duplicate. Spreads charged by your broker should also be considered since they have the potential to reduce your profits. Although following active traders is generally advised, be mindful that doing so can result in a buildup of commissions if the trader is a regular trader.

Copy Trading Software for Indian Stock Brokers 

 ComBiz Services Private Limited is a well-known IT company that provides the best copy trade platform. It is a popular copy trading service provider in India and provides copy trading for NSE, BSE, and MCX. Copy trading services provided by them are compatible with many Indian stock brokers, e.g., Alice BlueZerodhaAngel BrokingUpstoxStoxkartFyers, Finvasia, etc.

Conclusion 

Copy trading offers a unique opportunity for both novice and experienced traders to engage in the markets with minimal effort. While it provides accessibility, diversification, and the chance to learn from seasoned traders, it also comes with risks such as less control and market unpredictability. ComBiz Services Private Limited stands out as a reliable platform for copy trading in India, compatible with various brokers like Zerodha and Angel Broking. By leveraging their services, traders can maximize their potential while navigating the complexities of financial markets efficiently.

Related Articles: