Copy trading (also referred to as social trading) is a process where individuals who trade financial markets are able to automatically copy positions/trades made by other traders who use the same broker or trading platform.
How does Copy trading work?
In order to copy a trader (copy the trades or positions another trader places), you need access to a broker who offers a social/copy trade account. Once you have your trading account opened, you will be able to view the trading history and key statistics of traders available to follow, and place copy trades.
These processes are performed on a copy trading platform offered by the broker you choose. An example is eToro’s CopyTrader™ platform.
Difference between Copy and Social trading
These terms are very similar with only a minor difference.
Various brokers and financial service providers offer copy trading capabilities as part of a larger social trading platform. Social trading usually includes the ability to connect with other traders using the software in social ways (such as link sharing, likes, comments etc) in addition to searching for potential copy trading candidates by viewing investors’ performance statistics. Source: Wikipedia
Some trading platforms also provide ways to sort and rank traders according to defined performance parameters, therefore making it easier for traders to find potential investors to copy. Typically, trading histories of available traders to copy are available along with detailed performance and risk metrics. It is critical to review these results and metrics to ensure any trades you copy suit your own risk tolerance and situation. If you are unsure always consult a licensed advisor first.
Mirror trading is sometimes also referred to as copy/social trading although they differ slightly from mirror trading in the way the accounts are linked. In mirror trading investors select a trading strategy which the account then automatically “mirrors” the trades generated by the selected strategies, rather than an individual trader. It’s a subtle but important difference.
eToro CopyTrader ™ Platform
eToro’s platform would be classed as a Social trading platform, which includes copy trade functionality. It’s very easy to use and you can use eToro copy trader on Forex, CFDs, Indices, Cryptocurrency and more.
Simply open an account and then choose the investor that you would like to copy. Then enter the dollar amount you would like to allocate to the copy trade, and select the “copy” button. You will now be duplicating their positions automatically, in real time and direct proportion.
It’s important to know that you can start or stop copying a trader at any time you wish. At any time you can set a stop loss, pause the copy, and add or withdraw funds.