What is Copy Trading & How to Copy Expert Traders | LiteFinance (2024)

If you are a beginner in Forex and need some guidance, copy trading may be a great solution - it’s easy to repeat after successful traders. However, such an approach should be exercised carefully if you want to avoid some common mistakes. In this article, you will find out how copy trading works, how it differs from copy trading, and which practices will help you improve the efficiency of this approach.

What is copy trading

Copy trading is a technology that allows beginner Forex traders or investors to copy professional traders’ trades in their accounts. On platforms with this feature, traders from all across the globe can show subscribers their deals, which provides them the opportunity to borrow some trading experience and communicate with people of different trading backgrounds.

Copy trading allows clients to not only copy other traders' deals, but also read newsfeeds, share their own opinion about market sentiment for a fee, and provide trades for copying. On the whole, it’s a complete range of tools for communicating efficiently, exchanging expertise, and increasing earnings from the Forex market without deep skills. However, copy trading comes with risks, which will be outlined in this guide.

Copy trading investment

Thanks to copy trading, making investment decisions is easier because you can copy other traders’ deals in a percentage-based manner. For the purposes of diversification, some platforms don’t allow users to invest more than 20% of their portfolio in a single trader’s strategy. This is a clever rule because one and the same trader cannot perform well all the time.

Aside from saving time on market research, copy trading allows users to increase their profit. Different studies show that people who use copy trading show 10% more successful results than people who trade manually and manage deals according to their personal preferences.

Differences Between Social and Copy Trading

Copy trading is a subtype of social trading: it allows mirror traders to mimic the deals of popular investors. In this case, you do exactly the same things as the traders you follow: when they sell an asset, you sell. When they buy, you buy, too. This strategy can suit those who don’t want to spend time on market analysis and are ready for higher risks. Theoretically, you can choose a trader and virtually leave your account in his hands.

With social trading, you have access to several features:

• Following other traders;

• Tracking their statistics;

• Notifications about other users’ trades;

• Communication with other traders.

Although each trading platform has its own peculiarities, there’s one common feature: they focus on collaboration and community work. On many websites, you can join chat rooms or forums to discuss your strategies.

Hence, with social trading, every decision is up to you. This is an ideal choice for people who need full control over their accounts. That may involve a longer learning process, but you can select a risk/reward ratio and stay completely responsible for your trades.

Differences Between Social/Copy Trading and PAMM

Both social trading and PAMM services enable investors to make profits without direct participation when trading on your account is managed by an experienced trader. However, there are significant differences:

• In a PAMM service, the investor’s funds are transferred to the managing trader's account for trading. In social trading, the investor’s money remains on his/her account. The funds are reserved for copying trades, but they can be withdrawn at any moment.

• In social trading, the investor can set copy trading parameters (volume, amount, stop loss level) as well as stop copying at any time. In the PAMM system, the investor cannot intervene in the trading process until the investment period finishes.

• In the PAMM services, the managing trader can limit the information provided to the trader. By default, investors see profitability, percentage of income, and commission. In social trading, the statistics are as transparent as possible. The managing trader cannot hide anything, and the investor can track closed positions in history and currently open ones.

• The commission of a managing trader in the PAMM system can be very high, from 20% to 80% and even higher. Typically, experienced managers set the commission starting from 50%. In social trading, on the contrary, professional traders have the lowest commissions. There are many potential investors in the system, traders reduce the commission to attract them. The average commission is about 20%.

How does copy trading work?

To start with, a user registers on a copy trading platform and makes a deposit on the account. Copy trading features need no activation — users can exploit the technology right away. Its set of functions fully automates the process of copying another trader's actions and guarantees safety and reliability of execution to every participant.

An investor copies trades and shares a part of the profit with the trader as a fee. The amount of commission pre-set by the trader as a copy trading fee is displayed in the ranking of traders. The unique feature of copy trading is that, unlike in such systems as PAMM, the money is kept directly in the investors’ accounts, and trading pros’ trades are copied directly onto the investors’ accounts.

While repeating traders’ deals, investors can also communicate with peers in dedicated embedded chats or contact a trader directly and ask any questions before copying.

Also, the system can be set individually to limit the risks. The monitoring of traders (ranking) shows the whole history of trades, profitability charts, and risk estimation.

Why is copy trading so popular?

With the growing popularity of cryptocurrencies and other financial instruments, the number of people who want to start trading keeps growing. However, lack of experience can be a serious obstacle - this is where copy trading comes in. Many novices on LiteFinance choose this feature in order to get familiar with different markets and assets and learn trading strategies by watching what professionals do.

The Social Trading approach is transparent and user-friendly, not to mention its efficiency. Plus, it allows users to cooperate and help each other. Famous traders can earn a living, while novices can make their first steps with fewer mistakes and painful losses. The former are glad to multiply their profits, while the latter borrow efficient trading strategies from them. It’s a mutually beneficial partnership.

Example of copy trading

A good example of spontaneous and unsystematic copy trading could be observed at the beginning of 2021 when many people started investing heavily in GameStop’s stocks because of rumors that started on Reddit. Investors from the r/WallStreetBets subreddit led a surge in buying interest, which eventually resulted in a short squeeze of GameStop stock.

Another example is a common occasion. Say Trader A wants to earn on Japanese stocks but doesn't know about local events and news — he lacks the knowledge of the Japanese language (to read the news from politics or central banking policies) and awareness of market sentiment in real time. This is where copy trading comes in!

Trader A can rely on the experience of Trader B, who is experienced in working with Japanese stocks, and follow him on a platform for copy trading. However, before entrusting his funds to anyone, Trader A should make his own analysis of Trader B’s performance.

How does one trader copy the trades of another in the system?

A beginner trader attaches the trading account to the account of an experienced trader. Thus, transactions are duplicated from one account to another. A novice trader does not need to trade independently, monitor trader sentiment on social media, or look for insider news. The investor selects the trader in the ranking with a proven trading history and high profitability, who knows exactly which trades will yield a profit.

Having made the choice, the investor attaches his/her account to the trader’s account. The trades will be copied to the investor's account automatically.

You may wonder why a professional trader is interested in it. The fact is that copy trading benefits both parties. In addition to their profit from trading, the professional receives a share of the income of the accounts that copy them.

This way, the experienced traders earn additional income, and the newbies get a chance to succeed in the financial markets from the beginning.

Why should I copy trades, and how do I use the service skillfully?

If we may say so, not every beginner trader would be happy merely blindly duplicating a professional trader's trades. If you don't plan to master this profession and only want to collect profits, you just need to select truly successful traders, copy their trades, and revel in the results (collecting profits and paying a small percentage).

But if you wish to develop your own trading skills, then consider Social Trading as a chance to learn from real professionals, compare your trading ideas with theirs, and make your trading decisions based on their assumptions. This is possible with Social Trading, too. The platform has been developed perfectly well and, despite being automated, it can still be adjusted.

You can copy trades partially, read newsfeeds, or trade independently based on professional decisions. Just choose your way!

In any case, you are the winner and your profits grow. To get more details on the service, click here or contact the company's support team.

Learn, develop yourself and use the LiteFinance broker to your advantage. It's much easier to trade and get high profits in the Forex market when you approach the subject skillfully.

How to start LiteFinance copy trading

Here are a few simple steps to start copying:

1. Register on the copy trading platform.

2. Choose a trader in the Copy section using the multi-functional rankings.

3. Top up your account.

4. Set parameters and start copying a chosen trader.

How to start copying Forex trades

Let us see what you should do to start copying forex trades. In fact, everything is very easy, but I will try to describe the system in as much detail as possible so that you can get the maximum benefits from using it.

1. Register on the copy trading platform

You need to register on the social trading platform to get access to professional traders’ trades worldwide and be able to copy them.

First, register in the system here. Registration is really easy. Enter your country, phone number or email address, and set a password. Think about setting a complex password: all that concerns money shall be safe. Also, remember that you won’t be able to use another email address afterwards, so don’t enter the address you normally use for social networks or emailing.

2. Choose a trader to copy

You can choose successful traders using the open and customizable online rankings.

If you are already registered on the my.litefinance.org platform, simply log in.

After registration, we can choose a trader using the ranking that fully monitors trades. Click on the “Copy” tab in the vertical menu on the left. Then, move to the Popular menu. This menu displays the traders who’ve got the biggest managed deposit.

By the way, you may customize the page with the traders the way you want. For example, I prefer a tabular display to the cards displayed by default. Also, there are plenty of settings to choose your trader.

Let’s find out. In the picture below, I marked the main options for choosing a trader one by one.

1 – Switching from the card display mode to the tabular display mode

2 – Menu for customizing the trader’s card view where you can also activate the quick trading option. Once this option is activated, there will be a copy button for each trader. Try activating it and turning it off. What should I add here... Be careful when activating the quick trading option or else a cat or a child can launch copying without your knowledge. When clicking on a chosen trader, you’ll see his/her full information and detailed profitability chart that you may copy from too.

3 – The “Period” function allows setting a period over which the displayed traders will be sorted by specific parameters. You can choose “All time” (default value), 1 day (will hardly be informative unless you want to check who is number 1 exactly this day), 1, 3 or 6 last months, or 1 year.

4 – Sorting of traders by specific parameters, among which Profitability, Managed capital, Number of copy traders, Period of trading, and Trading risk level.

5 – “Select”. It’s a multi-level filter which helps fully customize the choice of traders setting the user’s parameters. Let’s have a closer look at it. From left to right and from up to down:

Profitability: you can set your desired profitability level over a certain period (customizable using the next filter). At the same time, remember that higher profitability is linked to higher risks. The system has got some traders whose profitability exceeds 30,000 %, but the risk factor of such traders is high as well. Everyone should decide for themselves what they want: big earnings linked to high risks or, as they say, “a bird in the hand”, —smaller profitability levels with lower deposit utilisation rates.

I’d like to mention that high-risk traders still can be copied as you can minimize the risk through copy settings while a big deposit will help to go through an eventual drawdown. I’ll be talking about it in detail later.

Period of trading is the period of a trader’s work in the system measured in days. The longer a trader trades, the longer his/her trading history is, which helps us estimate the trader. But remember that newcomers to the system may turn out to be brilliant experienced traders too.

Number of copy traders is the filter showing the trader’s popularity with the system members. Note that some investors can follow the trader from one platform to another because they trust them. Besides, some traders can promote their profiles on social media or various thematic resources for attracting new investors while others are busy trading and don’t waste time on self-promotion. You should consider all this when choosing your trader as things aren’t always obvious.

Maximum risk level. I’ve partly mentioned this factor above. More detailes are to be found in the section FAQ on the Social Trading platform, items 4.2, 4.3, 4.4. In simple words: the risk level is calculated based on the trader’s deposit utilisation rate and equity drawdown. The higher the risk is, the more money is used in trading as compared to the whole account deposit. The more money is used (an increase of this value results in Margin Call and Stop Out), the less available money needed for enduring drawdowns is left. Also, leverage (higher leverage equals higher risks, in general) and the trader’s account lifespan are considered.

Trader’s commission is a percentage of a copy trader’s profit. All is simple here: a trader wants to earn some money for allowing others to copy his/her profitable trades. The amount of commission is set by the trader. If a trader hasn’t earned anything, it means his/her trades weren’t profitable and he/she won’t get any commission from you. The accounts are settled every day. A rollover takes place at the beginning of each trading day when traders are paid commissions from copy traders based on results of the previous trading day.

Trader’s assets – this parameter will filter the traders based on the volume of their own money held in the account available for copy trading.

Copy traders’ assets – this parameter will filter the traders based on the volume of money held in the accounts of the attached copy traders. You can estimate how much money the trader is entrusted with.

So, we’ve looked through the filters. Now, click on “Apply”.

These filters are needed for accurate personalization. You can use simpler filters, sorting the traders by profitability, risk, number of copy traders, or you can check the ranking.

Did you take your decision and choose your trader(s)?

Remember to add them to favourites by clicking on the “star” sign, not to lose them.

Attention: You may copy a few traders at once if you wish to diversify your risks and increase the chance to reach higher profits.

So, click on the selected trader, check his/her profitability chart, current trading portfolio, trading history, traded instruments and his/her results for each group of instruments. You can send a private message to the trader and specify any details or ask some advice concerning copy trading settings.

Let's move on. Now, you need to make a deposit that will be used for opening copy trades in your account.

3. Topping up account for copy trading

Make a deposit into your account in the copy trading system. The deposit is kept in your account and used for opening copy trades.

Click on the “Copy” button next to the profitability chart or in the general list next to a chosen trader. If you don’t have money in a real account, a pop-up window will appear from where you can top up the account.

You can opt for a demo mode, but copying will be done using demo money and profits will be virtual too. Anyway, the demo mode is a wonderful chance to test the platform and try trading in your account unaided if you don’t have any experience.

Getting back to the point: once you’ve clicked on the Top Up button, there will appear a window to fill in the payment details. I counted 20 payment methods off the cuff. Choose the most convenient one. Personally, I use Skrill as it’s fast and easy, but there are loads of e-payment systems, bank cards, and bank transfers. Choose your system, enter a deposit amount, click on Continue and follow step-by-step instructions based on your system. As a rule, all deposit methods work almost instantly, except bank wires which can take from 1 to 3 working days.

There’s also another way to make a deposit. Move to the “Finance” section in the left vertical menu of the platform, choose a convenient method out of available methods in your country or scroll the page down for some more payment methods available on the platform.

Pay attention to the upper menu: the history of transfers, for example, shows the logs of all of your deposits and withdrawals within the system.

4. Now let’s launch the copy trading process

Set and launch the copying of trades of the professional traders you’ve chosen

Do you remember we added some traders to the Favorites so we wouldn’t lose them? Open this tab now, click on the trader’s card and set the amount of funds that will be used in copy trading in the profitability chart section.

The total amount of funds is displayed at the bottom of the page (dark blue line). I’m going to copy a few traders, so I distribute my money among them. You can maximize the portfolio by clicking on it. Later on, it will show the information on your current earnings from copy trading. Under the Copy Equity graph, there’s the “Copy settings” option. It’s a very important option. Click on it. Again, I’ve marked all important parameters one by one in the picture.

1 – Copy Equity:this parameter allows you to limit the amount of funds used for copying this particular trader.

2 – Copy opened orders:if enabled, this parameter copies the chosen trader’s all open trades onto the copy trading account at a current market price from the start of copying. If this option is disabled, only newly opened trades will be copied onto the copy trading account.

3 –Copy type: a trader can choose from 4 copy trading types that allow customizing the user’s copy trading parameters and minimizing risks through setting a copy trading volume.

4 – Max loss/Max profit: in essence, these parameters are an analogue of Stop Loss and Take Profit. They allow limiting the max. profit/loss amount for current copying. It means, copying will stop and the account will be detached from the trader as soon as the level of copy trading funds (the “Profit” graph in the portfolio) has reached the specified value.

I’m going to examine this parameter in detail a bit further. Let’s continue. Let’s assume, we’ve chosen a default copy type. Set your desired parameters and start copying: click on the COPY button. The portfolio (the lower part of the page) will display your copy trades. I’ve started copying 2 traders. That’s the way it looks like:

We only have to wait, watch the copy process, fix profits once a desired profitability level has been reached, and detach the account if you want to try copying other traders or withdraw profits. The CLOSE button stops copying, the EDIT button allows editing copy settings, including a copy type, at any time.

While waiting, we can chat with traders from all across the globe and grow wiser as traders. The chat button is located in the upper right corner of the platform.

Also, remember to check the next tab with channels: it contains loads of useful things.

Now, let’s move to examining copy types.

Copy trading types at Forex

How does Forex copy trading work? Copy trades with any of the 4 copy types. Choose the most convenient one!

Note: For simplicity, let’s use the terms “investor’s account” (the account onto which trades are copied) and “trader’s account” (the account from which trades are copied).

1. “Full size 1 to 1”

This copy type implies that the volume of a trade copied onto the investor’s account is equal to the volume of the respective trade in the trader’s account. For example, if the trader has opened 5 lots in his/her account, a trade of 5 lots will be copied onto the investor’s account.

2. Fixed size of each trade

This copy type implies that the volume of a trade copied onto the investor’s account is always identical to a fixed volume pre-set in lots in Copy Settings.

For example, if the investor sets this value at 2 lots and the trader opens a trade of 5 lots, a trade of 2 lots will be copied onto the investor’s account.

3. Copying a % of each trade’s volume

This copy type implies that the volume of a trade copied onto the investor’s account is equal to a % of the volume of a respective trade in the trader’s account.

For example, if the investor sets this coefficient at 50% and the trader opens a trade of 5 lots, a trade of 2.5 lots will be copied onto the investor’s account. The investor can set this coefficient in a range from 1% to 10,000% in 1% increments.

4. Copying in proportion to investor’s funds

This copy type implies that the volume of a trade copied onto the investor’s account is defined by the copy equity/trader’s equity ratio. The volume of the investor’s equity used for copying trades is defined in copy settings.

In case of using “All Equity” as copy equity, it shall be equal to the current amount of funds in the investor’s account at the moment of copying a trade.

The volume of a trade to be copied onto the investor’s account is calculated in the following way:

Volume of trade in trader’s account * copy equity / trader’s equity = volume of trade in investor’s account

For example, the equity on the trader’s and investor’s account is $5,000 and $10,000 respectively

- If the investor sets copy equity at 2,500, trades will be copied onto his/her account with coefficient of 2,500/5,000 = 0.5 (50% of the volume of the trader’s trade).

- If the investor sets copy equity at 6,000, trades will be copied onto his/her account with coefficient of 6,000/5,000 = 1.2 (120% of the volume of the trader’s trade).

- If the investor uses all equity as copy equity, trades will be copied onto his/her account with coefficient of 10,000/5,000 = 2 (200% of the volume of the trader’s trade).

Pros and cons of copy trading

If you have little to no previous experience in following other traders, it’s crucial to understand the advantages and drawbacks of copy trading and weigh them in order to make an informed decision.

Pros of copy trading

• There is no psychological factor because you do not make your own trading decisions.
• You don’t need to understand the Forex market like a pro, you don’t have to explore how the trading platform works, how to analyse the market, or make predictions.
• You can succeed by simply following others — there is no steep learning curve in trading.
• When choosing a trader, you see detailed information: the profitability and how it changes over time, trading assets, how much money is in his/her account and how many people copy him, as well as the risk levels of his trading strategy.
• The trader does not manage or access your money. You only copy the trades on your account. Therefore, you will lose your investment only if the trader loses his/hers deposit.
• Your chances of increasing your capital are higher when you rely on experts’ opinions.
• You can diversify your portfolio and copy several traders on different trading accounts allocating your investments among different traders. So, if one trader has a loss at some point, you can compensate for a drawdown due to the profits from other traders.
• You can spend time on something else other than performing market analysis.

Cons of copy trading

• When you rely on the experience of other traders, you can lose your own investments if you don’t select traders wisely.
• You should continuously monitor other traders’ activity and be able to react to their notifications quickly.
• With copy trading, you stay responsible for your decisions of choosing the trader to copy, so without any basic knowledge of trading, it will be hard to figure out reliable signals, especially during times of high volatility.
• If you don’t care about what’s happening on the market and simply follow others’ recommendations, you miss out on the opportunity to learn about trading and develop your own unique strategy.
• The trader is not responsible for any loss of the client’s funds, as the client simply repeats the trading behaviour on their account. If the trader suffers any losses, the same will happen to the client’s account.

Copy Trading and Analysis

In order to maximize the efficiency of your copy trading activity, you should perform market analysis on your own. This is very important because famous traders can also make mistakes, so you should double-check their predictions. You can get an insight into a particular market by using:

• Technical analysis. This sort of market research allows you to foresee market movements based on the price’s history (recent trading day, week or month). You can use different instruments: patterns, candlesticks, etc. to detect certain rules in assets’ performance and check the traders’ assumptions.

• Fundamental analysis. This means you study not just the asset’s price performance, but the reasons behind its intrinsic value. Fundamental analysis means inspecting the issuer of the stock or currency, the purposes it serves, and the future applications. This is a must for serious and large investments, so if you open long-term positions with copy trading, make sure to study the basics of this research.

Copy Trading and Risk Management

Risk management in copy trading is another important aspect as it allows you to figure out whether the profit is worth the dangers you’re exposing your capital to. This is a set of rules that will help you make an informed decision.

Basically, the rules of risk management in trading boil down to the following points:

• Decide on a deal’s risk/profit ratio — every trader is ready to put a different part of their capital at stake.

• Do not risk a huge part of your portfolio, even if some successful traders do. Staking 50% of your funds is a very dangerous strategy. As a rule, traders don’t recommend putting more than 2% of your portfolio in a single deal or asset.

• Ask yourself whether the position is worth opening. If you are hesitating, better opt for another trade or wait for changes in the mood of the financial market.

• Don’t blindly follow famous trading names - learn more about the market and try to make your own assumptions and predictions.

How much money can you make copy trading?

The profit from copy trading depends on the risk degree. You can regularly receive a small income, or you can increase your initial capital several times, but the risk will be much higher. You can calculate your potential profit using the calculator below:

TheLiteFinance online platform allows you to choose a suitable trader to copy using a convenient rating system. You study detailed information about trader’s performance: trading assets, profitability, risk degree, and the number of copying investors. The system enables you to study the trading history of the trader and see the positions currently open. You can also contact him directly via online chat to discuss trade ideas.

How to copy trading signals in MetaTrader 4/5

The built-in copy trading system is also available in the MetaTrader 4 and MetaTrader 5, known as the Trading Signals service. You can select the signal to copy on your account. The system displays the trading history and opened positions. Investors can see the profit amount, the deepest drawdown and the leverage, the number of copying investors (subscribers), and the percentage of profitable trades.

Each position of the trader can be displayed in a separate price chart. The trade can also specify the trading strategy. Investors must pay for subscriptions to copy trades of other traders.

How do you analyse the profitability of signals?

You can analyse the trader’s performance by studying the profitability chart. If the profit is rising, and there are no deep drawdowns, this is a good option for copying. Note the risk degree, the lower the risk, the less likely you are to lose much. It is important to study trading history and the number of winning and losing trades. The number of investors copying the trader can show how popular he/she is. The amount of initial deposit and trading assets also matter. For example, cryptocurrency trading can yield a significant profit, but the risks are also significantly higher than in trading safe havens.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.