Published On: Fri, Jul 21st, 2017

Mirror And Copy Trading – Its Mechanism, Strengths And Weaknesses

Mirror trading and copy trading sound similar, but there is a subtle difference.

What is Mirror Trading?

Trading platforms provide free demo accounts to traders to record their performance. As soon as the trader’s trading statistics look promising, they get placed on the leader-board and master account is given. The platform displays the top trader’s performance record on their website, and regularly updates them.

Mirror And Copy Trading - Its Mechanism, Strengths And Weaknesses

If you wish to follow the specific top trader, then open an account with the recommended broker, who controls the master account. Your account will be auto-linked to the specific trader’s master account. All the traders’ activities will mirror in your account. You can select your personal risk management parameters to avoid chosen trader’s occasional failures.

Strength of mirror trading

• You are in total control of your capital
• Reduces the impact of emotional urges. You don’t get the chance to determine how and when to close or open trades, because the chosen strategy does it.
• You get wide range of instruments as well as markets to select from.
• Users can replicate signals in accordance to their own capital size.
• You get to check real performance strategy, and with this true information you get to select better parameters.
• With total control on your capital, you can manage risk, as per your will.
Weaknesses of mirror trading
• Trade markets fluctuate frequently and automatic strategies cannot adapt these changes quickly.
• They are limited to generate good performance under specific market conditions
• For some investors evaluating the effectiveness and performance of a strategy is hard. Risk factor involved in making profit cannot be identified.
• Unexpected risks due to malfunction of the brokerage platform using different technologies.

What is Copy Trading?

Copy trading can be conducted through special platforms like ZuluTrade. Get registered, choose signal providers, and subscribe to his trading signals. Automatically, the chosen trader’s transaction gets replicated in your account. The transactions you don’t like can be closed.

Pros of copy trading

• You can earn with as little as or no skill level, because professional trader will perform all the actions.
• You can select a signal provider with the trading style that suits you.
• You don’t need to monitor the trade market constantly, thus you enjoy more free time.
• You get to select multiple signal providers and diversify risks. One lost deal will get hedged with another profitable trade, due to multi-trading.

Cons of copy trading

• Signal provider can make a mistake, which can cause significant losses. You need to understand the risks that come with copy trading.
• Copying someone makes you lose your personal style. You don’t get a chance to hone your skills, as you don’t monitor or conduct analysis. You lose the art of learning from your mistakes.

Copy trading vs. social trading

These terms are not synonyms, but copy trading is a component of social trading. Special social hub services implement social trading process. Traders exchange information online with other community members. New traders observe how professionals act and repeat their deals. Sharing of experience and trade secrets is beneficial to everyone.

Be vigilant

The similarity you find in social, mirror, and copy trading platform lies in the concept of providing an investor a chance to select another person, who needs to trade in his/her place. Following a specific trader or employing the wisdom of traders collectively does not mean you need to lose your vigilance.

It is necessary to monitor the signal providers and traders performance regularly, or you can end up losing considerably. Which alternative to select is personal preference, but invest time to learn the trade business to avoid rookie errors, which can cost you a lot.

About the Author

- Paul Linus is an eminent online journalist who has been writing news, features and editorials on different websites from across the world for about a decade.

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