Although there are opportunities in the foreign exchange market to make money every day, not everybody has the skills to take advantage of these opportunities or the required time to do so. The reality is that forex trading is not easy to do. It requires an average amount of knowledge and experience in order to get it right.
As a result, it is wise to leave trading to those who are very good at it if you are someone who cannot find the time to scrutinize the forex charts every day. One of the easiest ways to do that is to begin following trading signals from forex traders who are already making a profit. Nevertheless, profits are not constant and some fraudulent practices exist in this area of forex trading also.
Sometimes, providers of signals do not always fulfill their promises and others even outrightly defraud their clients. Although copying signals is not a risk-free route to profits, it is a beautiful option for many people.
What is copy trading?
A copy trading platform is one which allows an investor’s account to be linked to the trades from a manager’s account, and to also replicate such trades. Investors can link their accounts to several managers at the same time and can decide how much money to allocate to each manager, thereby, diversifying their portfolio and risk.
All trades from the account of the signal provider will be copied to the investor’s account, but the investor can close any of such opened positions. The advantage of copy trading is that the investor can choose to abstain from trades that he considers risky or simply does not like.
What are your goals and what is possible?
It is important to know what you want to achieve and what is actually possible before starting to copy trading signals. For example, a profit of 2% to 5% every month is feasible with a comparatively low level of risk. However, anything above 10% monthly will start breaching certain lines of reasonable risk.
You should look for profitable managers but do not ignore risk. There are a number of these signal providers that may promise profits in thousands of percent but simply blow up their accounts and everyone else’s account who copied their signals. Make sure the managers and signal providers are competent in what they are doing.
Selecting a manager and a strategy
It is not simple to choose a manager. You have to consider a number of areas such as their strategies and performance. The approach to evaluating other traders is not different from the approach to evaluating our own performance and strategies.
The most crucial thing to consider is consistency and adequate trading history. For a day trader or scalper, six to twelve months may be fine, but for a swing or position trader, the experience should be more. Consistent results for one or two years is solid evidence that there are good chances of this trader and his strategy continuing to make a profit in the future.
Also, it is important to consider their drawdowns and any abnormal large losses. They should have drawdowns that can be contained with no huge losses that swallow up months of gains in a single trade.
Make sure there is reliable execution
Ensure that there is dependable execution on the copy trading platform. It is important to make sure that trades from your chosen managers will be copied indeed without any mistakes.
You see, several of those platforms undergo large delays between the time of execution on the manger’s account and on the trader’s account. Sometimes, accounts can also indiscriminately get disconnected making you miss out on trades without knowing. On this count, PAMM accounts provide an advantage as the manager controls the pool of funds hence delays cannot exist.