When it comes to online trading, there are a lot of different approaches that traders can take. Some people like to go it alone, researching the markets themselves to make their own trading decisions. Others prefer to follow the lead of more experienced traders, where copy trading and mirror trading come in.
Copy trading and mirror trading are both methods that allow traders to copy the trades of other successful traders automatically. They can be a great way to learn from more experienced traders or ensure that you are always following a winning strategy, but they are not entirely the same.
What is copy trading?
With copy trading, you are essentially copying the trades of another trader in real-time, without having to place the trades yourself manually. A copy trading platform allows you to select a trader or group of traders who meet specific profitability and risk management criteria. Once you have made your selection, their trades will be automatically copied into your account in real-time.
Many different platforms offer copy trading, including eToro and Tradeo. These platforms typically allow you to view information about each trader, including their past performance and level of risk management. Some platforms also feature social elements such as comments and ratings from other users, and this can help you decide which traders you want to copy.
What is mirror trading?
Mirror trading is very similar to copy trading as it involves copying the trades of other traders automatically, without having to place the trades manually. The main difference is in the level of control you have over your copy trading. With mirror trading, you can choose whether or not to place a trade based on its technical indicators and price chart patterns, which means that you are making independent decisions about which trades to place rather than blindly copying the actions of others.
Mirror trading platforms often feature sophisticated tools that allow users to backtest strategies, analyse performance, and predict future market trends. These tools help make mirror trading more appealing for experienced traders who want complete control over their investment portfolio.
Which approach is right for you?
If you’re new to online trading, copy trading may be an excellent option to help you learn the ropes. However, if you are an experienced trader or seasoned investor who knows what they are doing, mirror trading could be a better choice as it allows you more control over your trades and portfolio.
Ultimately, that depends on your goals and experience level in online trading. If you’re new to investing and want to learn from more experienced traders, copy trading may be a good option for you. Mirror trading may be a better choice if you are a seasoned investor who wants complete control over your investment portfolio. Either way, copy and mirror trading can be great methods for making consistent profits in online investing.
Drawbacks of using copy trading and mirror trading
While copy trading and mirror trading can be great ways to make consistent profits, there are also some potential drawbacks to using these methods that you should consider. For example, copy traders may not always have access to the full range of information about each trader’s strategy or risk management techniques, leaving you vulnerable to following a losing strategy without realising it or placing trades without fully understanding the risks.
Similarly, with mirror trading, you may find that it takes a lot of time and effort to analyse performance data and predict future market trends, especially if you are using complex strategies such as technical analysis. Additionally, your investment portfolio could be highly concentrated in specific markets or asset classes which could expose you to greater levels of risk.
Both copy and mirror trading are great ways to make consistent profits in online investing. The right trading approach will depend on several factors, including your experience level and investment goals. If you’re a UK trader looking to get started with copy or mirror trading, do your research first to decide which strategy best suits your needs, and use an online broker such as Saxo Bank.