By Ikenna Pius
Marketers tout Forex copy trading as a way of making truckloads of money without any risk. If that were true, we would all be billionaires. Closer to the truth is that it can either make steady money or make huge loses, depending on how you go about it.
Done correctly, this can be a blessing. But without precaution, it can lead to tears and pain which is always just a click away in the highly volatile market that is forex trading.
The objective of this article is to make readers aware of this powerful investment opportunity, without falling prey to the inherent traps. By clearly stating the advantages and disadvantages, each reader can decide whether this is a good investment for him or her.
Is Forex Copy Trading A Good Investment?
As stated in the introduction, it depends on how one goes about it. Before deciding on whether this is something that one should do, it is important to do some explaining about what it is all about; so as to leave no room to doubt.
So What Is Forex Copy Trading?
Forex copy trading (also called social trading) is a system by which people can copy the trades made by professionals. More accurately; trades by professionals are automatically copied to subscriber accounts.
This type of service may be offered by forex brokers targeting newbie traders who have little or no knowledge of trading. Commissions are paid by the subscribers (investors like you) to the professional trader (usually around 30% of profits), and this may also significantly increase his earnings.
This is a revolutionary idea; it can benefit everybody. The broker wins, the professional wins, and the investor wins.
But if everybody wins, then why do we need to take care? Well, because there are pitfalls which could potentially lead to terrible losses. Let us now look at the advantages and disadvantages of social forex trading; starting with the disadvantages.
Disadvantages of Forex Social Trading
Can Lead To Huge Loses
Forex trading is a risky venture; it can lead to huge loses. That said; no matter how attractive social forex trading looks; it does not change the fact that it is something that can possibly lead to huge loses.
In fact, with forex, the higher the profit, the higher the risk. This means it is those accounts with bigger profits that have the most potential for losing all the money invested into them. This is an irony that few newbies will understand, and there lies the trap.
You Have Little Control
You do have some control; just not a lot. Yes, the essence of copy trading is that you can mirror the trades of successful traders. This means you can close trades you do not agree with- if you know what trades to agree with, and which trades not agree with.
Besides, the trader could live in a different time zone, and then he could be active when you are sleeping. This means one could wake up to more money in his account, or wake up to huge loses.
Maybe most people find this prospect exciting, but remember that most people will lose their money; in forex, stocks, and everything else.
Looks Can Be Deceiving
This is very true with social forex trading; a trader can appear to be profitable but at the cost of common sense. Sometimes what looks like a profitable trader is actually a martingale robot. It may consistently make money over a long period of time; but it will one day crash. Surely!
Martingale is a very dangerous system that involves increasing exposure to a bad trade with the hope that the tide will eventually turn, and you can then turn a profit.
The general rule is to avoid this strategy. If a newbie opts for copy trading; he may see such an account, and then, impressed by the results displayed, he may choose to copy such an account, ultimately leading to tears.
Does are some of the risks involved. But if it was all about risk and no reward the forex copy trading would not be so popular. Here are some of the benefits involved.
Advantages of Forex Copy Trading
A Great Way To Learn
This is arguably the best way to understand how the professionals approach the markets. One can take hundreds of courses, and read thousands of books and articles, have an in-depth knowledge of the market, and still not make any money.
There is a great difference between theory and practice in trading; copying a professional helps you see charts like professionals do, and in time, the copier can start trading like professionals.
Furthermore, the great traders always have their own unique approach to the market which often goes beyond just seeing charts. Copying a successful trader can help a person understand this important aspect of trading, and then develop his own edge.
A Cool Way To Make Money
Forex copy trading can be a great way to make money; one can easily make more money than in stocks, real estate, or putting money in any bank. The markets are always moving, and so there is always an opportunity to earn.
As long as precaution has been taken to ensure that one is not copying a martingale robot; then one is probably safe. (Read how to choose a good Copy Trade. The link is at the bottom of this page)
The choice of whether to withdraw profits weekly or monthly depends on the individual investor; but as a rule it is generally advised that one takes the profits so as secure some money outside the investment.
Further Reading:
- How To Choose A Good Copy Trader
- Best Forex Brokers For Beginners
- What Is Martingale And Should You Use It?
Closing
Is Forex Copy Trading A Good Investment? Yes, forex copy trading (also known as social trading) can be a good avenue to learn about the inner workings of the financial markets, while earning good money at the same time. It is one of the less known investment angles, maybe because it is relatively new.
As with new investment opportunities it too has been abused; many fraudsters and people without real knowledge have set up accounts to lure in newbies; and to help them lose their money. With proper research, however this is an avenue that can significantly boost a person’s net worth.
