Copy Trading: Pros, Cons, and How to Get Started

Copy trading is a form of trading on the stock market where traders follow and replicate the trades of other successful traders. It is a way to make profitable investments in the markets without putting in the time and effort necessary to understand the stock market or build advanced strategies on their own. In copy trading, an experienced trader or investor (the ‘leader’) will share their trades with others (the ‘followers’). The followers then can automatically mimic all of the leader's trades or, in some cases, selectively copy certain trades. This is sometimes also referred to as mirror trading or social trading.

Copy trading can be done on many platforms, including online brokers, social networks, and mobile apps. These trading platforms make it easy for both novice and experienced investors to find successful traders and copy their strategies. The leader will set parameters for how their trades can be followed by others – including how much risk they allow followers to take on and how much money those followers need to start investing in their positions.

For these reasons, copy trading has become a popular way for beginners to start their investing journey and take advantage of the expertise of successful investors.

Is Copy Trading Right for You?

Copy trading is an ideal option for those who want to invest in the stock market but don't have the time or knowledge to do so. For example, investors new to the financial markets and want to start learning the ropes can take advantage of the expertise of more experienced traders while minimizing some of the risks they would take by making their own trades. Copy trading can also benefit those already seasoned investors who simply wish to diversify their portfolio with different strategies while saving time and effort.

Copy trading is a great way for novice or experienced investors to access potentially lucrative investments. Investors can use various tools to find successful leaders whose trades they can follow, such as rankings, ratings, and other performance indicators offered by many platforms. This allows them to make informed decisions about which leader's trading strategies they should follow. Additionally, most trading platforms provide customizable settings that allow followers to set rules that fit their risk tolerance levels and investment goals.

The Different Kinds of Copy Trading

Automated

With automated trading, investors choose the leaders they want to follow, replicating their portfolios and copying their trades automatically. This strategy is usually used with complete packages offered by copy trading platforms, with a range of associated fees.

Semi-Automated

This kind of copy trading allows investors to view the positions and trades of the leaders they choose to follow and then decide on which trades to copy and which to ignore for their portfolios. This requires more work from the investor, as they have to monitor their leaders’ activities and make decisions on their own. The risk here is that following one position and ignoring the other can mean missing the position that offsets a loss on the other. Every experienced investor knows diversification is crucial, and many experts rely on a complicated series of trades of a variety of assets to achieve higher profits.

Manual

Manual copy trading is the most similar to standard trading and is sometimes called social trading. In this case, investors watch the trades of investors with a proven track record and manually mirror their positions in their portfolios. This requires a lot of individual research and doesn’t save nearly as much time as automated or semi-automated copy trading.

The Pros of Copy Trading

Copy trading can provide some unique opportunities for investors. One of the biggest advantages is the access to knowledge and experience it opens up. Copy trading allows beginners to access the stock market and learn from successful traders without putting in the same amount of work and study as they would if they were making their own trades. This enables them to gain experience and knowledge while avoiding many investment risks.

Furthermore, copy trading provides an opportunity to diversify investments, allowing investors to follow different strategies offered by different traders. There is no need to stick with one leader or strategy for a long period of time; investors can quickly switch traders or strategies if they find that one isn't performing as well as expected. Many platforms offer detailed analysis tools to help followers quickly and accurately identify good leaders. 

Flexibility

Additionally, copy trading offers flexibility regarding how much market risk an investor is willing to take. With most trading platforms, followers can customize their parameters and risk tolerance levels so they don't take on more than what's comfortable for them.

Copy trading is one of the simplest ways for novice investors to create a passive income stream. It's also a great way to build a diversified portfolio, even if you make some trades independently. But, at the end of the day, the main advantage of copy trading is the convenience - offering potentially great returns with minimal time and effort on the part of individual investors.

The Cons of Copy Trading

On the other hand, copy trading has some unique downsides for investors. There is always a risk that the strategy of the "leader" you're copying trades from is unsuccessful. This is further complicated by the massive wave of "finfluencers" on social media who promote their strategies without a proven track record or vetting. The flip side of the accessibility that copy trading enables for investors is the accessibility it enables for financial advisors, giving anyone the ability to claim they are an expert and encourage others to follow them. There are a lot of great leaders for copy traders to follow out there, but also lots of inexperienced ones looking for social media exposure.

Another common issue with copy trading and the platforms that enable it is the lack of transparency and education. Copy traders rely on the performance of other traders, but often, they are given very little explanation about the strategies behind their trades, long-term vision, or even a breakdown of their thought process. This is an essential component for new traders and is severely lacking in the copy trading industry. Many copy traders are new investors, and the goal should be to help them understand the stock market so they can make more informed decisions about how they invest their money.

Copy Trading Fees

There is also a big discrepancy amongst the various trading platforms that enable copy trading. Many charge exorbitant fees just to copy leaders' portfolios, others charge additional fees for each trade, and some have high account minimums that make them prohibitive for beginning investors. While some are free and easy to use, the legitimacy of the leaders' track records is questionable.  Additionally, when following someone else's trades, investors are often required to trust their leader entirely and have faith in their ability to make accurate predictions. In any form of investing, knowing that a person’s past results do not necessarily indicate future success is important.

How to Start Copy Trading

1.     Create an account on a copy trading platform you trust. Some let anyone with an account be both an investor and a leader; others put their leaders through intense vetting processes. There is also a huge range in fees and minimum account levels across the spectrum of copy trade options available to investors.

2. Determine your personal risk tolerance level and the amount you want to invest, and get a general sense of what kind of investor you want to be. As you explore your options as far as trading platforms that suit your goals, some will give you very few options and leave you mostly in the dark about how your money is being invested, while others let you choose from a variety of leaders that offer different portfolio types and risk levels.

3.     Sit back and watch! If you’re using an automated platform, your portfolio will simply replicate any trades your leader makes. Having said that, it’s always good to do some base-level research on the trades being made on your behalf. You will understand how your money is being invested and become a better investor as you learn from the experts you’re following.

Tips and Strategies for Successful Copy Trading

Copy trading can be a great introduction for new investors to test the waters of investing in the stock market without taking too much risk. While the hands-off approach can be very appealing, it's always a good idea to do base-level research on the trades your "leader" is making. At the end of the day, it's your money being invested, and you should know what's going on. Many of the most accessible platforms for copy trading are lacking in the education they offer to their users, so you may have to do some research on your own.

We can't overstate how important it is to determine your risk tolerance level and use it as a parameter on whatever copy trading platform you use. Every investor, even the most successful ones, takes losses sometimes. While those losses can be a drop in the bucket for your leaders, your investment account may be much smaller, and a small loss for them may be a major hit for you.

Copy Trading Platform

As you can see, copy trading platforms are a big market with many investor options. Some have exorbitant fees, while others have a minimal vetting process for their expert investors. Very few offer the transparency and educational component that can help novice investors make better decisions about their financial future. At the same time, most beginning investors don’t start with a huge investment account or the ability to pay high fees to personal financial advisors.

That’s where Wizest comes in. We had a vision for the best copy trading platform for all levels of investors and created a solution to democratize the stock market and remove some barriers to entry that discourage novice investors. We understand the stock market can be intimidating and overwhelming and that most people’s lives are too busy to spend hours analyzing the market and making thoughtful investments.

Choose People, Not Stocks

Wizest lets you pick people instead of stocks. You can build your team of financial experts by browsing their expert profiles and portfolios like you would follow them on any social media platform. Building your team takes just minutes, replicating the portfolios of Experts with one click after you check out their profiles. It’s like fantasy football for investing, and you can shuffle your team of Experts anytime!

The Wizest Experts are curated to provide a variety of investing styles and risk levels for our users to choose from and are highly vetted by our leadership team. They regularly post updates to your news feed to explain their positions and investing style, adding the transparency lacking in the copy trading platforms available to investors. Trades are then fully automated for users (with no extra transaction fees), so they can sit back and watch their money work without missing important trades before it’s too late.

Wizest is designed to make investing simple for new traders, diversification easier for veteran investors, and the financial journey engaging and fun for everyone, regardless of experience level. Our simple subscription model makes it affordable for everyone (the cost of 1 coffee a week), no matter the size of your account, with no hidden fees.

Sign up for Wizest now to take advantage of our special launch pricing!