For example, the news of interest rate hikes has caused volatility in crypto markets before, which could cause your position to get stopped out. Copying a trader that takes these factors into account will help you survive during times of uncertainty. Contrary to many platforms, CopyMe allows you to copy trade multiple traders at once. Diversification in trading is a known way to minimize your risk.

is copy trading safe

Today, individual investors agree to a Letter of Direction (LoD), which is a form that authorizes the broker to copy the trades of other traders automatically based on your explicit instruction. For cryptocurrency copy trading, your broker must be a registered Money Services Business (MSB) and licensed by FinCEN. In legal terms, copy trading is typically treated as a self-directed account.

What Is The Law On Copy Trading?

There are good resources out there that make order books or trading look a bit easier like following whale alerts or CoinLobster but you have to keep and eye out for the new websites. You want to identify masters who have a decent stake in their account because they will do what’s right—and this benefits you the follower (aka the shareholder). But statistically speaking, most markets trend less than 50% of the time.

is copy trading safe

International investors own about 40% of U.S. corporate value, with foreign purchases of U.S. shares totalling $30.6 trillion in 2021, the Federal Reserve has said. Due to current legal and regulatory requirements, United States citizens or residents are currently unable to open a trading business with us. In this article, we will talk about what copy trading is, how it works, and some of the pros and cons. Consider setting aside some money in an emergency saving fund so that you can have cash on hand when you need it and put the rest of your money in copy trading.

The Top 5 Safe and Legal Copy Trading Platforms

Automated trading is a type of copy trading that allows investors to automate the process of buying or selling assets as determined by a set of predefined rules. However, it is important to remember that there are risks involved with copy trading and losses may be incurred. Steven Hatzakis is the Global Director of Research for ForexBrokers.com. Steven previously served as an Editor for Finance Magnates, where he authored over 1,000 published articles about the online finance industry. A forex industry expert and an active fintech and crypto researcher, Steven advises blockchain companies at the board level and holds a Series III license in the U.S. as a Commodity Trading Advisor (CTA). It’s important to note that copy trading still requires active account management — it’s not a quick fix or an easy way to make money.

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This is why copy trading is a good kick-start for a beginner’s trading career. You can learn along the way, analyzing and observing the steps taken by other traders. Definitely, you won’t get access to the plan behind the moves and the overall vision that guides the trader you copy. The first big risk is that you will entrust your money to a trader who is not experienced or professional enough to deliver the results he/she promises.

The Best Moving Averages for Day Trading You Should Master

Say trader you’re following buys 100 shares of a particular stock. If they allocate 5% of their portfolio to a specific stock sector, you’d do the same. Whichever route you take, there are plenty of trading platforms to choose from, but not all of them are worth your time and money.

In either case, cautiousness should always be exercised while engaging in copy trading in order to avoid losses that far exceed your initial invested capital. Therefore, any trader interested in beginning their journey into copy trading should perform thorough research into both their particular brokerage and all other pertinent details before committing financially. The next step is setting up monitoring and alerting systems which will keep track of the copied trades and alert users in case any changes happen in the portfolio of the selected trader. Once you have identified a trader that meets your criteria, you can decide on the amount of money to allocate for copy trading. It is important to do your research and fully understand the different strategies a trader may be using before copying them.

Is copy trading legal?

Ultimately it is clear there are potential risks attached to copy trading along with potential rewards but all must be weighed before entering into this form of investing. Those without sufficient understanding of financial markets can be particularly vulnerable to losses. By blending both approaches one can potentially maximize their trades by taking advantage of both risky but high-reward investments as well as safe and steady investments. By taking these precautionary steps, investors can enjoy some of the potential benefits that come from trying out this form of investing without running excess risks.

  • The rest is performed by a trader, and you only have to copy their actions.
  • As with the traditional DIY approach to trading, there are of course risks involved.
  • First, it is an easy strategy to use since all you need is an account and access to master traders.
  • Copy trading is mostly safe, is legit, and can generate income, even if you are a beginner.
  • Because of the algorithmic nature of trading, it also runs 24/7 and is not affected by emotions.

No matter what trading method one opts for, it always comes with risks. This concludes our write-up on copy trading — its risks, benefits and history as well as strategies to use in copy trading. There are reasons to use copy trading, and reasons to stick to trading on your own. These algorithms have been built and perfected to execute trades based on many different inputs, and process these inputs way faster than any human will ever be able to.

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All it takes is about $200 on day one and, without any experience, you can start earning cash. If a broker’s software or servers experiences glitches, it can cause problems with your trading signals, investing strategy or orders; leading to unwanted losses for investors. They can instead trust in what an experienced trader does – theoretically reducing the risk of mistakes being made and therefore minimizing losses on investments. It’s possible to lose money quickly if the expert trader you follow makes a wrong call on their best investments. On one hand, following experienced traders provides beginner traders access to sound strategies that are often difficult to come up with independently.