Copy Trading

Prior to the beginning of the 21st century, financial trading had several problems: high costs, time constraints, and information inaccessibility. The ability to make frequent trades or quickly adjust investment strategies was considered a luxury for the average trader. The emergence of the internet in the late 1990s gradually began to make trading more accessible for all investors.

Advances in online trading platforms eventually led to the creation of these three popular forms of trading: social trading, copy trading, and mirror trading. All three forms of trading are now available on various social trading networks for stocks, forex, crypto assets, and other financial instruments.

In this informative article, we examine the pros and cons of each form of trading while outlining which are best suited for different types of traders. We also answer several frequently asked questions and define the common terms you’ll encounter on trading platforms and social trading networks.

Platform Best For Top Features Learn More

eToro

Copy Trading

  • Top Traders in the Industry to Copy
  • Easy to Use Platform
  • Free Trading Education Content For Beginners

Top Choice

ZuluTrade

Social Trading

  • Largest Social Trading Network
  • Connects to Multiple Brokers
  • Comprehensive Trader Profile

Tradency

Mirror Trading

  • Enterprise support for traders
  • Customizable solutions for B2B
  • Tailored for High Net Worth Traders

What is Social Trading?

Social trading is a form of investing in which traders make investment decisions based on observations and collaboration with their peers. Social traders oftentimes work together to share market research, pool funds, and optimize portfolios.

Social trading began to emerge throughout the 2010s and demographically appeals to millennials who grew up using social media platforms.

How Does Social Trading Work?

Social trading is more of a general concept that can work in several different ways. Let’s take a look at some examples of social trading in action:

  • Twitter - Popular traders and investors focused on a variety of asset classes have considerably large followings on twitter. These individuals frequently tweet their thoughts, market analysis, charts, relevant news, and more to interested followers.
  • eToro - Replicate the portfolios of top ranked traders and socialize the research efforts involved in stock investing. Discuss trades, open discussions with other members, post to your social news feed, and much more.
  • TradingView - Professional traders frequently post their trades and technical analysis. Follow along, learn, chat in the comment section, and more at no cost.
  • Twitch.tv - Hundreds of experienced traders live stream their thoughts, charting analysis, and more while engaging with their live chat community.

Social Trading Pros & Cons

Pros:

Investment Autonomy: Social trading enables traders to have more autonomy to make decisions on individual trades. This can sometimes help traders avoid the risks involved with automated trading.

Community Analysis: Social trading networks and social media platforms enable traders to build or engage in a community that can provide multiple opinions on a specific investment decision or overall strategies.

Access To More Information: Social trading often makes use of news feeds with relevant information about specific assets that can help traders make investment decisions based on quantitative data, human sentiment, and industry news.

Cons:

Greater Time Commitment: Constantly monitoring the flow of market information and making decisions on individual trades tends to be time-consuming.

Missed Opportunities: Because social trading is based on manual decisions rather than automated ones, traders are likely to miss some opportunities. This can occur when a trader neglects the markets for a short period of time.

Impulsive Trading: Social trading can center around overly-hyped news or sentiments that oftentimes end up creating false market signals that are irrelevant to price action.

Transparency: Using social media platforms to make trading decisions has potential transparency issues. Individuals who say they have made specific trades or invested certain amounts of funds could be misleading other traders. This doesn’t apply to sites such as eToro that transparently track the trades and portfolios of top traders.

Social Trading is Best For:

  • Beginners - New traders and investors looking to learn the basics.
  • Entertainment - Traders who only want to trade small sums of money as a hobby while engaging with a community.
  • Narrative-Focused Traders - Those looking to identify trends and market sentiments as opposed to strictly focusing on technical analysis.
  • Professional Traders & Experts - Successful traders who can build a large presence and following on social trading networks can make additional income from other traders who value their trading expertise by way of platform commission.

What is Copy Trading?

Copy trading is a form of investing that involves the automated trading of a user’s assets based entirely on the trades of another trader. Many platforms enable users to copy multiple traders with their balances proportionally. This diversification reduces risk and makes it easy to test out different top traders.

Copy trading was first introduced by Tradency’s publicly available automated trading service in 2005 and later became considerably more popular when eToro launched their CopyTrader service in 2007.

How Does Copy Trading Work?

Observing an example:

A copy trader, (Person A), allocates a specified amount of funds to copy the trades of a specified trader, (Person B). If Person B allocates 5% of their funds to buy or sell an asset, the account of Person A automatically allocates 5% of their own funds to make the same trade(s). If Person B allocates 10% of their funds to make another trade, Person A also allocates 10%, and so on.

Copy Trading Pros & Cons

Pros:

Finding Winning Traders: Most social trading networks make it simple to track which traders have the highest ROI, which takes the guesswork out of deciding who to copy.

Lower Time Commitment: Copy trading covers all trades. Therefore, the person copying does not have to make any decisions on individual trades.

Reduced Emotions: Traders who participate in mirror trading don’t have to worry about FOMO or analysis paralysis, which are common problems in social trading. It is the copied trader’s job to account for these factors.

Cons:

High Risk: Making the same trades as the top trader on a social trading network does not guarantee success. If that person makes a bad trade, everyone copying them is also affected.

Copy Trading is Best For:

  • Beginners - New investors who want to learn the fundamentals of trading can copy top traders.
  • Time Constrained Investors - Those who want to save time through automated trading rather than having to constantly follow market trends and price action.
  • Professional Traders and Experts - Many social trading networks allow copied traders to earn commissions when other traders copy their trades.
  • Emotionally Driven Traders - Individuals who tend to make poor trading decisions because of their emotions can take a hands-off approach by assigning portfolio management responsibilities to a top trader.
eToro Copy Trading

What is Mirror Trading?

Mirror trading is a form of investing that involves the automated trading of assets based on algorithmic strategies rather than individual trades.

As with copy trading, mirror trading was first introduced by Tradency’s publicly available automated trading service in 2005.

How Does Mirror Trading Work?

Platforms that offer mirror trading will typically ask users to choose from a list of trading criteria. Example criteria factors include investment goals, risk tolerance, and preferred asset classes.

Mirror trading applies more general strategies from a number of top traders instead of outright duplicating trades from a single trader.

Mirror Trading Pros & Cons

Pros:

Time Commitment: Mirror trading is automated. A trader only has to be concerned with setting up the initial trading criteria. Algorithms handle the important trade decisions.

Diversified Risk: Because algorithms factor in trading decisions from multiple traders, there is theoretically less risk in each trade when compared to copy trading the trades of a single individual.

Consistent Results Required: Legitimate platforms require mirror trading strategies to display a proven track record of profitability over the span of 12+ months prior to listing them as options for other traders to follow.

Reduced Emotions: Traders who participate in mirror trading will not have to worry about FOMO or analysis paralysis, which are common problems in social trading. It is the developer of the mirror trading algorithm’s job to account for these factors.

Cons:

Unknown Logic: Mirror trading platforms do not typically publish information on why algorithms make specific trading decisions. This makes it more difficult to understand the strategies necessary to reach a high ROI.

Technical Knowledge Required: Trading that involves algorithms is typically not beginner friendly. It may be simple for an end user to select trading criteria on a mirror trading platform, but truly understanding how algorithms work can be difficult even for experienced traders.

Testing Algorithm Results: Some mirror trading algorithms are less proven than others. For example, a newer algorithm that has only operated during a bear market might not perform as well as other algorithms during a bull market - and vice versa.

Mirror Trading is Best For:

  • Technically Inclined Investors - Traders who understand how trading algorithms work are more likely to make informed decisions when choosing a mirror trading platform or algorithm.
  • Global Macro Traders - Algorithms are often developed based on strategies established by hundreds or thousands of expert traders who share similar strategies. Investors who understand and value how experts react to macroeconomic trends and data will likely want to choose mirror trading over copy trading.
  • Emotionally Driven Traders - Individuals who tend to make poor trading decisions based on emotions can take a hands-off approach by assigning portfolio management responsibilities to a mirror trading algorithm.

Overview: Social Trading vs Copy Trading vs Mirror Trading

Social Trading Copy Trading Mirror Trading
Beginner Friendly
X
Available In US
Fully Automated
X
Algorithmic
X
X

Relevant Terms To Know

Trading Markets

The available asset classes on a social trading platform. These typically include stocks, commodities, crypto assets, ETFs, indices, and currencies.

Risk Score

Indicates the level of risk involved with a specific trade or trading strategy. Trading with high leverage, extreme price action volatility, and copying traders with limited platform experience are examples of factors that can increase risk score.

Copiers

An individual who copies another trader. The total number of copiers for top traders is usually displayed via leaderboards on social trading networks.

Gurus

Expert traders who provide market insights and strategies to large followings on social media sites like Twitter.

MetaTrader

A popular platform that supports forex trading features and services such as technical analysis tools, algorithm trading, and expert advisors.

Copied Trader

A person whose trades are copied by one or more traders. A copied trader is typically compensated via commissions when copiers make profitable trades.

Copy Stop-Loss (CSL)

An automated mechanism for ending a copier & copied trader relationship. Each copier has the ability to enter a specific percentage of their portfolio they are willing to lose when copying a top trader. For example, a copy trader with a portfolio worth $100 decides to copy a top trader and set a CSL of 10%. If the portfolio value drops to $90, a CSL is triggered. The relationship ends, meaning the copy trader has the option to choose a new top trader or manage the portfolio on their own.

Leaderboard

Displays rankings for traders with the most copiers or highest ROI on a copy trading platform.

Slippage

Used in the context of copy trading, slippage is the change in price of an asset in the time between when a copied trader executes a trade and when the same trade is duplicated on a copier’s account. Market prices often change in milliseconds on trading platforms, making slippage an inevitable reality.

Signal Provider

A trader who provides market insights, technical analysis, or copy trading services to other traders.

Virtual Portfolio (Demo Account)

A trading account where users can trade with practice funds in order to test out their trading strategies and/or a trading platform before depositing real money.

Network (Social Trading Network)

Any website or platform that enables traders to share their individual trades, trading strategies, related news, and portfolios with other traders. Most social trading networks offer a combination of features for social trading, copy trading, and/or mirror trading.

CFD

Stands for ‘Contract For Difference’. A type of derivative trading for futures, commodities, physical shares, and other financial contracts. Each CFD has a buyer and a seller who agree to pay the difference in the resulting trade value at contract closing time. If the difference of the trade is positive at closing, the buyer pays the seller. If the difference of the trade is negative, the seller pays the buyer.

Frequently Asked Questions

Are Americans allowed to participate in social trading networks?

Is social trading a good option for beginners?

What is the most popular social trading platform for stock trading?

Are the featured traders on social trading platforms financial advisors?

I’m not quite ready to participate in social trading with real money, do social trading platforms have demo accounts where I can trade for free?

What is the most popular social trading platform for Bitcoin trading?

Where can I copy trade popular cryptocurrency investors?

What is the popular investor program?

What is the average minimum deposit on social trading networks?

What is the difference between copy trading and mirror trading?

Is it possible to copy trade the best traders on Binance?

Where can I copy trade the best traders on Bitmex?

Summary: Choosing The Right Broker And Form Of Trading

Selecting the right broker and form of trading are two of the more daunting tasks for any beginning trader. There are hundreds of platforms available, which can make the selection process difficult.

Blockfer has done the research for you, narrowing down your best options to the three in the table below. Factors we focused on included: low commission rates, impressive investing tools, easy-to-access research, and available assets.

Platform Best For Top Features Learn More

eToro

Copy Trading

  • Top Traders in the Industry to Copy
  • Easy to Use Platform
  • Free Trading Education Content For Beginners

Top Choice

ZuluTrade

Social Trading

  • Largest Social Trading Network
  • Connects to Multiple Brokers
  • Comprehensive Trader Profile

Tradency

Mirror Trading

  • Enterprise support for traders
  • Customizable solutions for B2B
  • Tailored for High Net Worth Traders

So which form of trading produces the best results?

There isn’t a clear answer to this question. Choosing the best trading option for your needs simply comes down to personal preference. Trading experience level, technical knowledge, and investment goals are just a few of the factors that should be considered in your selection process.

Traders seeking more autonomy over their own trading decisions will likely consider social trading to be the best option. Those who want to automate their individual trades or trading strategies will likely find copy trading or mirror trading more suitable. Overall, beginners should go with social trading or copy trading. Advanced traders who understand trading algorithms or macro trading might prefer mirror trading.

Risk Disclosure

Social trading, copy trading, and mirror trading all present inherent financial risks. The majority of retail accounts lose money with these forms of trading.

This is an informative comparison between forms of trading and is exclusively designed to assist you in your own research process. Readers should be aware that it is difficult to outperform the market, and a majority of individuals are better served by investing in ETFs.

Blockfer does not acknowledge or present this content as investment advice. Potential investors should never invest more than they can afford to lose.

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