Copy trading is becoming increasingly popular, but you might still have a few questions about it. For example, is it safe, can you make money with it, and is it even legit?
Copy trading is safe and legit, especially if you’re a beginner. Yet, it requires the right approach to avoid risks. Choose a trader with long-term success (especially in a bear market), select a low-fee trading platform, and be careful when copying crypto trades since they’re historically volatile.
Today, we’ll talk about safety concerns regarding copy trading. You’ll learn how to mitigate risks when copy trading, and we’ll prove once and for all that it’s legit. Let’s get into it!
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Is Copy Trading Legit?
Copy trading is a legitimate way to make money in the stock or forex market. Copy trading simply involves copying the trades of successful traders, making it a more reliable passive income strategy if you’re brand new to the stock market. Instead of guessing which stocks to buy, you can piggyback on the success of a known and skilled trader who understands the market!
However, copy trading is only as legit as the platform you use. For example, with a trading platform like eToro, you can search for traders with the most success to choose the right one. All it takes is about $200 on day one and, without any experience, you can start earning cash.
While it’s true that beginners can make real money with copy trading because the risk of bad trades is incredibly low, it does require some strategy. You need to pick the right trader (more on that later), and even then, the stock market isn’t 100% predictable.
5 Must Know Copy Trading Risks And Ways To Address Them
Copy trading is generally safe. However, as with all investing and trading, risks exist. Here are the most common safety concerns (risks) when it comes to copy trading and how to mitigate them.
Trades Must Happen in Real-Time
A common problem with copy trading, especially for day trading (and even more so for forex and crypto trading), is that trades aren’t always executed immediately. If you want to follow in your trader’s footsteps, you need to copy their trades in real-time.
For example, if they sell a currency pair, you have to sell that currency pair simultaneously (or at least, as soon as possible, with little delay).
Volatility is common in the forex and crypto markets. Just because it was the right move to sell a currency pair a minute or even a few seconds ago, that does not mean it is the right move now. It may be too late to capitalize on those gains already. That’s why it is essential to choose a copy trading platform that executes copied trades in real-time, with virtually no delay.
You Need To Pick the Right Trader
You also need to make sure you choose the right trader to copy. Copy trading is generally safe, but if you pick the wrong trader who loses money, you’ll be in the red too. Copy trading isn’t foolproof, but you can improve your odds by selecting the right trader.
Here are some things to look for in a trader:
- The trader needs to have been successful for a long time. Even if they’ve earned a lot in the past month or two, never choose a brand new trader to copy!
- The trader needs to have been successful consistently. They need to have been successful year after year, seeing gains most months.
- The trader needs to have been successful even during bear markets. Of course, even the most experienced traders will lose money during bear markets. Yet, if the trader’s success only involves the bull market, they are probably not the best trader. A good trader knows how to navigate the ups and downs of the markets and persevere.
- The trader should not have a high-risk profile. It may be tempting to copy a trader who takes a lot of risks and makes a lot of money, but this success might not continue, and the trader may end up losing money in the long run. Try to lower your risk.
- The trader should be earning a nice return every year. What is considered a good return will depend on which market they are trading in.
You Need To Pick the Right Trading Platform
You also need to make sure you choose the right copy trading platform. Why is this important? The reality is that some copy trading platforms will charge you a lot more than you should be paying. For example, they may charge extra transaction fees that you wouldn’t know about unless you read the fine print.
They may also have bad spreads. Usually, you might only pay one pip per spread, but you might be paying a few pips per spread with other platforms. This profit goes to the copy trading platform and perhaps the trader you are copying as well, not you!
Choosing the right platform can keep more in your pocket in the long-term.
You Need To Know the Risks of Trading
All trading carries a risk, even if you’re copying a trader with years of success. While they are likely to do well, the market is notoriously unpredictable. That is especially true for the forex and crypto markets, as they can be the riskiest and volatile.
So, know what you are getting into. There is always some risk of losing money, even if you choose the best trader to copy. Act accordingly, and don’t put all of your money into copy trading.
Consider setting aside some money in an emergency saving fund so that you can have cash on hand when you need it and put the rest of your money in copy trading. This way, you will have a secure financial base. It is always a good idea to have some money in cash that is easily accessible.
You can put your emergency fund in a savings account so you can earn some extra interest. While it might take a few days for you to transfer money from a savings account to a checking account, the extra money you earn is worth it. You will also be less tempted to withdraw your emergency money for luxuries you don’t need if you keep it in a savings account, because most savings accounts have limits on how many times you can withdraw per month.
Copy trading isn’t riskier than regular trading. It is actually less risky because, as a beginner, you’re prone to making rookie mistakes. Copy trading is essentially a shortcut to passive income without mastering the market.
For some additional thoughts on copy trading, watch this video:
You Need To Have the Right Expectations
Too many beginners make the mistake of putting money into copy trading thinking it will make them rich overnight. That is not how copy trading works. You need to be in it for the long run. If you go in with such a mindset, you are going to be less likely to run away and quit as soon as the market dips. If you just want quick money, you will be more likely to quit.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
Copy trading is mostly safe, is legit, and can generate income, even if you are a beginner. However, it is still important to invest wisely and choose the right trader to copy and invest in the right trading platform. After reading this article, you should be a wiser trader and will be able to mitigate the risks of copy trading.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.
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