Fusion Markets

Read Time: 10 - 15 Minutes

In this article, we go through everything you need to know about forex copy trading and how you can gauge the benefits and drawbacks it offers to both beginners and experienced traders.

What is Copy Trading?

Copy trading is software that is used to duplicate the trading strategies of selected traders.  

 
While this may sound like “mirror trading” (a technique used to mimic another trader’s strategies), the key difference is in copy trading the copying trader has their account linked to the account of the trader being copied. This means that whenever the trader being copied opens, closes, or alters a position these actions are also applied to the linked account (the copying trader).  

Before we dive into more details about copy trading, it’s important to distinguish between copy trading and social trading, as they are often mistakenly considered to be one and the same. Since we have already made clear what copy trading is about, let’s go into what social trading is, and how it might differ from copy trading. 

In essence, social trading is a combination of social media and investment. In social trading platforms, you can directly communicate with other investors, and exchange information about what trades to perform in a given time. This allows more people to collaborate. 

The main advantage of this is that you can analyse the trades yourself, meaning in some cases, you can try to see if there are any errors in making the trades before you execute them yourself. 

In mirror and copy trading, traders are in most cases using automated software to mimic the strategies of selected traders. 

In both mirror trading and social trading, you are not directly following someone’s trades, but are instead either automating their strategy (mirror trading) or manually following their strategy (social trading). 

In contrast, copy trading follows the trades of the selected trader, including when a position is opened and closed, as the accounts are linked. 

While social trading involves a closer look at trades and is great for people who want to learn trading by experiencing it first-hand, it also includes investing more time in research on the terminology and strategies of the industry.  

It should also be noted that with social trading, you might still be solely responsible for the trades that you perform. You only gain information from other traders within the social trading platform, and you can't automatically execute the trades based on other traders, as copy trading platforms allow you to do. 

In a sense, the main difference is in the way people approach trading in the first place.  

For those who are keen on learning everything about trading, social trading is a fantastic place to start. They gain knowledge along the way as they perform trades themselves. They copy other traders but also do their own research in the process, because they want to know the reasoning behind those trades.  

Copy trading, on the other hand, is for people who want a hands-off approach to trading, who prefer not to have to constantly monitor their trades. It’s for people who would rather just trust their trades to an experienced trader or someone they know personally.  

Why Should I Learn About Copy Trading?

These days, when markets are monitored around the clock, a variety of strategies are called for and across various asset classes.  

Investors might favour some strategies they have applied for a long time and with good results, but there’s no guarantee that those strategies will always work in the future. 

History of Copy Trading

While popular now, the first iteration of copy trading goes back to 2005, when researchers found a way to create an algorithm that could replicate trading behaviours.  

This use of algorithms quickly grew in popularity as investors and brokers picked up on it. This became the birth of mirror trading. 
 

However, it wasn’t long until brokerages and popular traders used the popularity of mirror trading to instead allow investors to link to their account, and for a small fee, allow investors to get complete exposure to their positions and strategies. 

Copy trading has turned out to be a unique way of getting access to the financial markets. The innovation spread to others who wanted to invest in foreign exchange, crypto or stocks but didn't have the time to follow markets, analyse information, or devise strategies they weren’t even sure would work.  

What Are the Benefits of Copy Trading? 

Copy trading has several benefits. These fall under two main categories: Income and Learning.  

You Earn Passive Income

Copy trade forex allows for passive income. You only need to set up your account, find a reputable investor that has hopefully been investing or trading for many years and has a reliable track record with few bumps along the road in their performance. Ideally, they take less risk than the average investor by holding fewer drawdowns and accessing markets you wouldn’t either get exposure to (e.g., Forex, Commodities etc.).  

In a way, to copy trade forex is to ride the wave that the experienced investor is creating and profit from it. 

Of course, investing in this way is not entirely risk-free. That is what makes the other benefit category, learning, more significant if you’re a beginner trader. 

You Learn from the Experts

One crucial benefit of copy trading, which beginners should be aware of, is that it can save them tons of time learning the fundamentals of forex trading.  

Learning how to analyse market information and plan a strategy from scratch can take a long time. Copy trading helps shorten that learning process by following the market in real time with actual skin in the game.  

You can experience how seasoned traders approach trading and pick up ideas from them. Eventually, you may even make your own variations of their strategies.  

You Learn How Experts Handle Losses

That doesn’t mean you should blindly trust what an established investor is doing with their trades. Even experts make mistakes.  

In fact, good investors study their past losses to identify errors in their approach and make adjustments, intending to minimise future risk further. 

Among the things you can also learn from copy trading, then, is how to recognise these mistakes for yourself, despite an expert’s opinion or because of an expert’s mistake, when a trade will result in a loss. 

And from the expert traders’ example, you learn how to learn from your mistakes. 

What Are the Drawbacks of Copy Trading?

Like all other investment strategies, copy trading has its fair share of disadvantages across any platform.  

Even Experts Make Mistakes

As mentioned before, even professional investors can make mistakes. They might trade something they wouldn’t normally trade, or refuse to close a trade when they should have. These are common mistakes we can all make due to our hidden biases. It's best, therefore, to partially monitor your investments as well, and not passively hope for the best. Ideally, you’re following along and can understand the reasoning for why the trader you’ve followed has done what they’ve done.  

Investing Involves Costs 

For people keen on investing in high volume, the commission fee that professional investors take can sometimes add up if money has already been lost through a bad or missed strategy.  

With a copy trading platform like Fusion’s, you only pay fees for any positive performance. There are no hidden management fees or entry or exit fees. You simply agree to the performance fee when signing up and away you go.  

Dealing with Drawbacks

Like everything else, copy trading has its pros and cons. With careful decision-making, proper research, and intelligent risk management, you can maximise the benefits of copy trading and minimise its drawbacks.                                      

Final Thoughts 

There isn’t much difficulty to copy trading. All you're doing is finding someone you know with a decent track record which has steady gains with minimised risk and hopefully mimicking their strategies for trading in the markets.  

That can be done by looking at investors’ trade history and analysing their trade entry (both buy order for long positions and sell order for short positions). At least two years of history is a good place to start.  

Overall, copy trading can minimise the risk of capital loss if you have found the right trader. For professional investors already familiar with various strategies, copy trading is still a good option - it might get you access to an uncorrelated asset class they might not have traded before or sharpen their own skills by following and learning from someone else.  

If you’d like to get started with copy trading, Fusion offers a range of options for both beginner and seasoned traders. Fusion+ allows traders to copy trade some of the most successful traders in the financial markets.  
 

We also offer a copy trading service through our partner DupliTrade. For those who wanted more of a social trading experience we also provide that with our partner, Myfxbook Auto Trade. 

If you’d like to learn more, contact us and we’ll happily answer any questions you have about copy trading, Forex or CFDs.  

FAQs

What’s the main benefit of copy trading? 

The main benefit of copy trading is to automate the investors' trading and minimize risk. It can also prevent slippage in buy and sell orders because most copy trading platforms are fast and automated. 

How does copy trading work? 

It works by copying the strategies of other experienced investors and applying them to your portfolio. 

Can I use MT5 and MT4 for forex trading? 

You can use MT5 and MT4 for forex trading. While MT4 is explicitly designed for forex investments, MT5 has a range of other assets, both centralized and decentralized. 

What are the risks of copy trading? 

The main risk of copy trading is that even experienced traders whose strategies you might copy can make mistakes. You have to monitor your own investments to spot issues at once if something goes wrong. 

Thousands of brokers are ready to help you invest. Experience copy trading with MT4 or MT5. Sign up now! 

Using PayID is a fast and easy way currently available on the Fusion Hub for you to deposit your money into your account as quickly and easily as possible. 

PayID deposits are sent using your own unique PayID Email address for your Fusion account. This will be provided to you when you generate a new PayID Deposit Address via the Payments tab for AUD. When you are on this page, as shown below, you will be able to select the PayID deposit option and then generate this address here.  

Once you've received your unique Fusion PayID within the Hub, visit your internet banking and make a transfer using "PayID" and choose the option to send via the PayID "Email Address" option. Please note, an incorrect PayID Email will cause your deposit to be unsuccessful and create significant delays. 

Further Questions? 

If you have any further questions relating to your deposit, please don't hesitate to contact our friendly team via live chat. 

Read Time: 7 Minutes

What is Ethereum?  

You may have heard of Ethereum being compared to Bitcoin, but Ethereum isn’t actually the digital currency itself. Instead, Ethereum is the technology that can run various financial services like payment systems, identity software, security programs, and of course, cryptocurrency trading.  

But how does this technology work?  

Like Bitcoin, Ethereum also uses blockchain technology, but there are quite a few differences on the deeper, more technical side. Blockchain technology is the foundation that supports all of Ethereum’s services.  

The biggest feature of Ethereum is that it is a programmable blockchain. This means that you’re free to use the technology according to your own needs. Whether you need it for payments, software, or even Bitcoin, you’re free to do that!  

Some of the world’s biggest companies are using blockchain in various ways, which shows how flexible the technology is. BMW, the renowned automaker, is using the Ethereum blockchain to track materials across its supply chain.  

De Beers, the biggest diamond mining company globally, is using the Ethereum blockchain to track diamonds from mining to selling. HSBC is also using the blockchain to conduct foreign exchange trades on its FX Everywhere platform.  

The blockchain can be used on just about any technology that requires information to be logged and verified.   

But if you’re here reading this article, you’re probably more interested in investing in cryptocurrency or buying cryptocurrencies. That would be ETH or Ether.  

What is the difference between Ether and Ethereum?  

If Ethereum is the technology, then Ether is the cryptocurrency that runs on that technology. However, for most people, “Ethereum” and “Ether” are used interchangeably to refer to the digital currency instead of the technology.  

The shorthand for Ether is ETH, and just like Bitcoin, ETH is a form of decentralised finance or “defi.”  

This means that the digital currency is not centrally regulated by one authority. Instead, all the computers on the blockchain do the work of validating each and every transaction on the network.  

Ether is up there with Bitcoin as one of the most highly traded cryptocurrencies globally, along with Ripple XRP and Litecoin and others available on Fusion Markets’ platforms.   

The benefits of trading Ethereum  

As with any digital currency, the biggest benefit of trading Ethereum is the lack of centralised regulation because of blockchain technology. This means that making fraudulent transactions on the network is extremely difficult and almost impossible.  

However, one thing that makes Ether different from Bitcoin is that the supply of Eth is limitless.  

Let’s break it down a little bit.  

The way Bitcoin works is people are constantly “mining” for Bitcoin. However, there is a predefined limit for the amount of Bitcoin that can ever be in circulation. Once all the available Bitcoin has been mined, that’s all the Bitcoin that will ever circulate.  

The Bitcoin mining rate slows down over time, so the prediction is that the last Bitcoin will be mined at around 2140. That’s over a hundred years from now, but it’s still a definite time that will arrive.  

For most people, the problem with the limited supply of Bitcoin is that it can create issues like high inflation levels in the future.  

The supply of Ether does not have the same limitations that Bitcoin has. Thus, it can be more stable in its fluctuations, and this effectively works as a hedge against extreme inflation.  

Ether is also less volatile, at least when compared to Bitcoin. So if you’re looking to invest or trade in cryptocurrencies, but you want to minimise the volatility, Ether may be right up your alley.  

Risk Management when it comes to Ethereum  

Despite the lower volatility levels of Ethereum, it is still a cryptocurrency. This means that unlike more traditional investments like stocks and forex, its price is still quite volatile in comparison.  

So, when trading or investing in Ethereum, it’s essential to employ risk management practices.  

First, only use as much money as you’re willing to lose. This is a basic precept for investing or trading in general, and it applies to Ethereum as well. The price of ETH in 2021 may be high, and it may look like it will continue to rise, but no one can really predict the next price movement.  

Second, diversify. Don’t put all your eggs in one basket. If you want to trade cryptocurrency, make sure to allocate your funds across multiple digital currencies. That way, if the price of one plummets, you still have your holdings in other cryptocurrencies to rely on.  

Third, do your own research. Don’t rely on social media gurus or finance forum posts that tell you when to buy or sell. Cryptocurrency is a fairly new concept, and it’s pretty much still in its infancy stages.   

If you’re investing in ETH, make sure that you understand it, how it works, and what the technology behind it is.  

A good investment is one where you believe in the product you’re investing in.   

While it’s true that no one can really predict how the price of the cryptocurrency will move, it’s much safer to put your money in investments that you’ve done research in instead of just blindly following what you see on social media.  

Finally, make sure to monitor your own physical and mental health while trading cryptocurrency. The markets run 24/7, and you don’t want to be looking at charts all day while ignoring your own well-being.   

Taking care of your mind and body allows you to make better, more rational trading decisions, dramatically reducing the risk.  

Risk management is a fundamental skill that any reasonable investor or trader should have. There are plenty of risks when it comes to ETH and cryptocurrency in general. Risk is unavoidable, so the best thing we can do is to manage and minimize it.  

The Future of Ethereum  

Despite cryptocurrency being a new concept and Ethereum being fairly more recent than Bitcoin, its rise in the charts shows that it’s here to stay.  

The main selling point of Ethereum is how its blockchain technology compares to Bitcoin, and with the number of people investing in or trading ETH, it’s clear that there is widespread acceptance and trust for ETH.  

Will ETH keep its place as one of the top cryptocurrencies in the future? The truth is, nobody knows. Governments are still only beginning to recognise and regulate cryptocurrencies, so the future of ETH is, as a whole, uncertain.  

But for some people, that uncertainty is what makes ETH such a good investment. Hopefully, this article has helped get you started on the basics of trading ETH.