Copy trading is a term used in the content of social trading networks such as eToro where traders can automatically copy positions of various investors. This article will explain how the eToro copy trading feature works.
How it works:
Let’s assume that there are two people the guy A is very experienced as compared to the guy B who is a newbie. In this case the guy A will have a large experience of how the market and trading works where as the guy B won’t have a clue on how to go about trading or investing his money. That leaves the guy B with just two choices.
1. Go about trading based on your own instinct and hope for the best.
2. The other option which is the safer and the wiser one is that you analyze different traders for a period of time and start copying them based on your analysis over a selected time period.
If I was to start trading as a newbie I would always go for the option 2. However even when you are following the option two always keep certain things in mind. Always diversify your investment, and be very careful before deciding to follow a certain person.
You are allowed to copy as many as twenty different traders the minimum investment you have to make is $50 for each trader you’re copying. Let’s assume person A is copying person B. Person A opens his account with $1000 and opens a trade for $200. Now the same trade will be opened for the person B who is following person A. If the person B has $500 in his account his trade would be opened at $100 (notice the percentage is same for both 20% of the equity). Now when the person A will close his position be it in a profit or loss, the position will e closed for the person B too who is following person A. It’s that simple.
You need to have a minimum amount of $50 in your account to start copy trading.
The minimum trade amount allowed for an individual trade is $1, if the trade you’re trying to make is less than $1 it won’t open in your account.
You can’t invest more than 20% of your equity copying one trader. However if your account is less than $250 you are allowed to copy as much as you wish, the 20% limit is not applicable on those who have less than $250 in their account.
If you are also manually copying and you lose some amount this amount will be deducted from your balance. Let’s assume you’re copying a trader with 300$ and you closed a trade amounted $30 then you will be copying the trader with $270 because you already closed a trade manually.
You can un-copy any trader any time you wish, this can be done in two ways, either start trading manually or simply click the close button next to the trader’s name you’re copying on the eToro.