Copy trading is a practice where traders replicate the trades of successful investors without understanding their strategies. It emerged from mirror trading in 2005 and is popular in volatile markets like forex and cryptocurrencies. While it can be profitable, it carries risks including market, liquidity, and systematic risks, and traders should remember that past performance does not guarantee future success.

1. What is Copy
Trading ?

2. 2
Copy trading allows traders to copy trades executed by other investors in the financial
markets. The goal of copy trading is for the trader to have the same positions as the
investor they are copying. When copying another trader, one doesn’t receive the
layout of the trader’s strategy, but simply follows their trades blindly. This compares
with mirror trading, which allows one to copy a trader’s actual strategies.

3. 3
Copy trading was born out of mirror trading in 2005. Initially, traders copied specific
algorithms that were developed through automated trading. Developers shared their
trading history, allowing others to copy their trading strategies. This scenario formed a
social trading network. Eventually, traders began to copy trades in their personal
trading accounts, copying another trader rather than a strategy.

4. 4
Copy trading can be useful for traders who don’t have the time to follow the markets
themselves. Generally, copy trading is focused on short-term trading, in particular day
trading and swing trading strategies, but there are several different strategies that are
used to generate revenue. Copy trading tends to focus on assets within the forex
market, as well as cryptocurrencies and other complex or volatile markets. While copy
trading can be lucrative, there are also risks involved, and traders should remember
that past results are not a guarantee of future returns.

5. 5
Is copy trading profitable?
Copy trading can result in high profits if the trader finds a successful trader to copy.
However, the greatest risk a trader will face when copy trading is market risk. If the
strategy a trader is copying is unsuccessful, they can lose money. Traders also face
liquidity risk if the instruments they are trading experience illiquid conditions when
markets are volatile. Lastly, traders can face systematic risks if the product they are
trading experiences sharp declines or rallies.

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