If you're new to trading or extremely busy with work, studying the markets and developing your own winning trading strategies can be challenging. You might not have the time or the technical know-how to do so. But that does not mean you should not trade. At least, that's what folks at eToro thought when they developed their copy trading feature.
As the name suggests, copy trading is the ability to copy another trader's positions and duplicate them on your own trades. It allows you to follow what top traders on the platform are doing and automatically implement the same strategies on your trading account to optimise your chances of success. This piece will explore the world of copy trading stocks on eToro and how to do it.
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How Copy Trading Works on eToro
eToro is one of the best UK stock brokers and most trusted online trading platforms. It's regulated by the Financial Conduct Authority (FCA) and hosts a multitude of trading instruments. On the other hand, copy trading on the platform makes your life easier by allowing you to pick traders of your choice, set an amount you want to invest and automatically apply their trading strategies to your account.
However, for the copy trading feature to work, you need to invest more than $200 in your trade, and you can only copy a single trader 100 times simultaneously. Furthermore, you can only copy traders with over $1 trades as trades below this amount don't open.
One thing to note about copy trading is that if you close a position manually, you will receive that trade's amount in your copy balance. This is the amount you have dedicated to investing in copy trading but have yet to allocate to trade positions.
Types of Copy Trading
Copy All Trades
This type of copy trading gives the copier, or in this instance, you, the ability to copy all open positions from the copied trader account and apply them to your own. Furthermore, you can even match the trade amounts or set yours below or above their rates. However, before you use this strategy, there are several factors you should keep in mind:
- When you copy trades, you open positions at the current market price, not at the price the copied trader opened theirs. This could significantly impact your trades outcomes versus the copied trader because timing is a big part of successful trading.
- Your copied trade parameters will be the same as the trader you copy, which means you will have the same stop loss and take profit threshold.
- Your copied trades will mirror the copied trader's moves after you have copied them, which means your trade positions will follow every change they make to theirs.
- You can manually close positions while leaving the copied account active.
- If the copied trader makes any move on their account when the markets are closed, let's say they open a new position. The same order will be duplicated on your account and executed when the markets reopen, and this time, at the exact price.
- When the copied trader withdraws or deposits additional funds into his account, your trades might have differing proportions. The copied trader needs to close all his open positions, which resets the system.
Copy New Trades
When you opt to use the copy new trades strategy, your account will only duplicate new trades the copied trader opens. And as with the copy all trades, you will have to note a few things about the copy new trades:
- You will start duplicating trades from the copied account once you start copying them and subsequently once they open new positions.
- Your trades will also open at the same market rate as the copied account.
- The copied trader realised equity, which is their account balance and the amount they have invested, will determine the proportions of trade.
- Trades on your account will have the same thresholds as the copied trader's.
- Your account will automatically follow all changes made on the copied account. For instance, if they adjust their stop loss or take profit marks, the same adjustments will apply to your account.
- You can close any of the positions manually without closing the copied account.