Ever seen those advertisements? The ones with copy trading and how you can make your money even though you know nothing about the financial markets just by leaving your trading portfolio in the hands of experienced traders. You know the one by popular forex brokerages such as Etoro, FBS Copy Trading, OctaFX Copy Trading.
Ever think about how it works? Well, it’s simple. You leave your capital in your wallet, so that the trader you are copying doesn’t really have access to it, but instead your account will follow the trades the experienced trader makes. Every time the trader makes a trade, your account pays commission to the trader regardless of whether the trader wins or loses the trade. In the best-case scenario, they profit and therefore you profit as well. In the worst-case scenario, you zero out your account while the copy trader you are following goes home with commission.
The latter provides an experience as to why you shouldn’t risk your capital with someone else. In forex copy trading platforms, you will be able to analyze and see the trading history and record of the trader. For example, on forex trading apps of Etoro, FBS and OctaFX Copy Trading, you will be able to see the win/loss ratio, the trading history of which CFDs are being traded, as well as, their overall profitability in terms of growth and change.
So, let’s say you found yourself a trader who you’re confident with. His/her portfolio shows consistent growth and profitability. It shows that the trader is one of the best on the trading platform. Why shouldn’t you trade with this person? Here’s why:
ONE WRONG TRADE COULD LOSE YOUR ENTIRE ACCOUNT
There is a possibility for one trade that can go horribly wrong. If for instance, there is a position that is opened but it backfires completely because let’s face it, not all trades will go the right way and there isn’t a holy grail strategy out there. However, an emotional trader could continue to hold onto that position. While you may be able to close the position manually by yourself and stop following the trade, there is a possibility that you may have also set your account to follow in a wrong manner. Maybe you decided to go 1-to-1 on whatever trades the copy trader makes, maybe you decided to only follow a fraction of that. Regardless, if you don’t control your risks, then you aren’t controlling the risks associated with investing in a trader.
YOU DON’T KNOW THEIR TRADING STRATEGY
For all you know, this trader may be the luckiest gambler on the planet. You have no idea what their trading strategy is. You have no idea if the trades that are being made are one’s that are educated guesses. Why? Because you have decided to let go of that responsibility of knowing what is happening in the market. You’re confident that based on the record of this individual, they must know what they are doing. However, sooner or later, they may slip up; whether it is through a wrong trade or if they get emotional.
LOSS OF CONTROL
It doesn’t matter what anyone says. You don’t have control over any of the trades because you are not empowering yourself. By trading normally and conventionally, you are going to be learning about the forex market, you will be learning to become a better trader and at the end of the day you will know what you are doing and you can be confident that you are in control of trading by yourself for yourself.
Don’t know how to trade? Try reading our article that gives you a comprehensive guide into trading like a professional (Click Here to Read Article). Empower yourself and regain control. Don’t risk your capital with someone else and be confident that you will be able to be profitable.