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What is copy trading and how to copy trade?

Education /
Milan Cutkovic

What is copy trading?

Copy trading allows participants to replicate the trades placed by other, often more experienced traders in real time. The idea is to find a trader with a proven track record and begin copying their trades.

When we talk about copy trading, there are usually three parties involved:

  • Provider: This is the trader whose trades are being copied. Sometimes they are also referred to as a "Master Trader" or "Signal Provider".
  • Copier: This is the person copying the provider's trades, using their own trading account.
  • Broker: The broker provides access to the copy trading platform (like an app or MetaTrader 4) which allows the provider and copier to connect.

 

How does copy trading work?

  • Brokerages provide a copy trading software or application. In the app, traders that are copied are known as ‘signals’, while their followers are known as ‘copiers’.
  • Traders sign up with the brokerage and link their accounts to the copy trading app.
  • As the signals trade and build a track record, their performance data, including monthly returns and profitability, can be monitored through the app.
  • Copiers select which signals to follow. Once a copier connects to a signal, every transaction executed by the signal is automatically replicated in the accounts of their copiers, proportionally adjusting for factors like available funds and risk preference.
  • In return, the signal trader charges the copier a percentage of the profits.

How does copy trading work?Image is for illustrative purposes only

 

How to copy trade?

To be able to start copying someone's trades, first, you need to open your own live MT4 trading account. This is the account you will use to follow other traders. It’s worth noting here that once you’ve got a live account, you always have the option to open additional sub-accounts, which gives you extra flexibility. For example, you could use one account for manual trading and another for copying trades.

Next, you need to link your live MT4 account(s) to the copy trading system of your choice. Once that’s done, you’ll be able to see a list of providers whose trades you can copy. Now it’s simply a case of clicking on a trader to view their stats – this typically includes things like their past performance, drawdown, and the things they typically trade.

How to copy trade

Before you confirm that you want to copy a trader, you can adjust the overall risk settings to suit your own goals and risk tolerance. This is important because all traders come from a different starting point – for example, an experienced trader might have more money to trade and a higher tolerance for risk than someone who is less experienced. The flexibility to follow top traders makes copy trading a good option to trade the financial markets – especially for those who lack the time or resources to trade on their own. Either way, the ability to change your individual settings helps ensure you remain in control over how much you are risking on each trade.

If all you want to do is copy trades, there is no manual intervention required. You simply click ‘copy,’ and your account will automatically start copying the trades of your chosen signal provider.

You’re then free to go off and do other things while the system keeps running in the background. However, you should always keep an eye on your account, not only to track the performance but also to ensure that you always have enough margin in your account.

Tip: While copy trading is especially popular in the forex market, it’s not limited just to currency pairs. Each provider or master trader will have their own expertise and preferences for what they like to trade, such as forex, single stocks, indices, commodities, cryptocurrencies, and more.

 

How to copy trade on the Axi copy trading app

As soon as you login into the Axi copy trading app, you will be presented with the "Discover" tab where you can browse through the various signal providers.

If you are looking for a specific signal provider and know their username, you can use the "Search" function at the top of the screen.

Otherwise, you can scroll through the providers ranked by their all-time performance or daily performance.

How to copy trade with AxiImage is for illustrative purposes only

To retrieve the performance stats for a signal provider simply click on their username. Their profile page will open, and you will be able to see their past performance - including their monthly return, total return, realised PnL, unrealised PnL, and maximum drawdown.

Image is for illustrative purposes only

Scrolling down on the profile page, you will find the markets the signal provider has traded the most (expressed as a percentage).

Further down, you will find a description of their service, a link to their website, and various trade achievements.

Image is for illustrative purposes only


Image is for illustrative purposes only

Ready to copy? Simply scroll back to the top of the profile page of the signal provider and hit the yellow "Copy" button.

A new page will open displaying the performance fee you will be charged (in this example, there is none). Here, you will also set your preferred trade size (fixed size, mirror master size, and mirror master risk) and select whether you wish to copy existing trades or not.

Image is for illustrative purposes only

You can read and agree to the terms on the following page.

Once that is done, you will receive a confirmation that you are successfully copying the selected provider.

You can change the settings or stop the copy service at any time by visiting the provider's profile or by going to the "Account" page and then selecting "Who am I copying?".

Image is for illustrative purposes only

 

Advantages of copy trading

Discover four advantages of copy trading below:

  • Flexibility: While copy trading involves simply copying the trades of the provider, the copier still maintains control of how much they want to risk per trade. For example, if the provider is trading large lot sizes but the copy trader has insufficient funds in their account, they can adjust the trade size, so it works proportionally to their own account balance.
  • Efficiency: Becoming a successful trader is a long journey and not every trader can dedicate multiple hours per day to this. However, copy trading allows you to trade right alongside top traders even if you’re busy with other things – you just need to make sure you have your risk parameters set up and monitored properly.
  • Transparency: Copy trading is similar to social trading in the sense that there is a leaderboard where you can compare different providers and their performance. This means wins and losses are visible to see.
  • Diversification: Copy trading is not only helpful for traders who lack the time to do any trading on their own. Traders can also choose to copy someone as a diversification tool. For example, you may feel most comfortable using a swing trading strategy but could copy someone who has shown they are successful at short-term trading. If your own strategy isn’t performing well or you’re finding a lack of trading opportunities, copy trading might make up for some of it.

 

Disadvantages of copy trading

Discover four disadvantages of copy trading below:

  • Picking the right trader can be difficult: If you were thinking of buying into a stock or investment fund, you would probably spend some time doing research to figure out if it’s the right decision, and this is the same sort of approach you should use when choosing which traders to copy. You need to realise that it’s not necessarily the trader with the highest monthly return you want to copy. There are always other factors to consider, such as maximum drawdown and how much trading history the trader has.
  • Understand the risk: Copy trading can be risky because losses are replicated in the same way that wins are. While you have some control over the risk (for example, how much money you will allocate to your trading account and the risk settings), you do not control the trades of the trader you are following. Market conditions may change, and the master trader may struggle to adapt, or they may be stressed and unable to control their emotions when trading. While these things are beyond your control, you do need to consider them.
  • Additional costs: Some providers charge a subscription fee if you want to copy their trades, so always check before you trade.
  • Market risks: Copy trading does not protect you from all the typical market risks such as slippage, rejected orders, or platform outages.

 

Copy trading terminology

There may be some new terminology you have not seen before in the copy trading space. We've highlighted the common terms you will see below:

  • Fixed size: When you're copying an account, "fixed size" means that you select the total size of the trade you're about to make. So, even though you are copying the signal's position, you are not necessarily copying the size of that position. Instead, you get to set your own.
  • Mirror master size: Mirror master size directly copies the size of the signal that you wish to copy. For example, if the trader you want to copy has bought £50 worth of gold, choosing "mirror master size" will also buy you £50 worth of gold. This function copies the signal trade size for all trades, irrespective of your or the master trader's account size.
  • Mirror master risk: When copying a signal, "mirror master risk" adjusts the size of your trade relative to your account size, so that you take the same percentage of risk as the signal you're copying. To put it another way, buying £5,000 of CAC40 is much riskier for an account with a balance of £5,500 than for one with £100,000.
  • Max drawdown: A maximum drawdown (MDD) is also known as a "Hard Stop". This is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained. Maximum drawdown is an indicator of downside risk over a specified time period. It’s important to note that it only measures the size of the largest loss and does not consider the frequency of these losses. The max drawdown is a % value and will apply to your entire account and NOT just a specific signal.
  • For example, if you were to set a Max Drawdown value of 30% when the equity value of your account falls by 30%, all copying is suspended and all trades that have been sourced from a signal are closed. Note that no new copy trades can be placed on your account until you adjust your Max Drawdown further. In the example above you would need to extend your Drawdown to 40%, for example.
  • Warning level: When your drawdown reaches the percentage you input at the "warning level", the app will send you a notification to inform you that this level has been reached.
  • Soft stop level: If the drawdown reaches the soft stop level inputted by the user, copying will be suspended.
  • Hard stop level: If the hard stop level is triggered, all trades will close, and copying will be suspended.

 

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The Axi Copy Trading App is provided in partnership with London & Eastern LLP. Past results are not indicative of future performance. Copying other traders carries inherent risks, such as the possibility of replicating poor trading decisions or copying traders whose objectives, financial situation and needs differ from your own. Any accounts available for copying have not been authorised or approved by Axi.

This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.

FAQ


What is the difference between copy trading and mirror trading?

Mirror trading and copy trading are similar, but there are some key differences. With mirror trading, you are copying whatever the master trader does, including the same position size they place on their trades. 

With copy trading, you are following the same trading strategy and the exact trades the signal provider is taking, but crucially you can adjust position sizes. This means that if you are not fully confident in all the trades of the master trader, you can reduce the size of your position on certain trades you follow. 


Is copy trading too risky?

All trading involves a degree of risk, therefore so does copy trading. However, it is your account, you have full control of it, and you can adjust risk parameters to suit your own requirements. Even though you’re copying another trader, it’s always your responsibility to conduct due diligence and not just blindly follow someone because they have proven success in the past. 

For example, the trader with the highest return might experience massive drawdowns or could have a very short trading history. Other traders might have lower returns but demonstrate greater consistency. Unfortunately, there is no way to remove risk from trading, but you can help to reduce it. 


Can copy trading be profitable?

If you find a successful trader to copy, copy trading can certainly be profitable. However, trading in general is inherently risky, and copy trading is no different. 

No trader wins on every trade, and even though you might have picked them because they have positive results overall, the provider you choose to copy might go through a period of drawdown – meaning that you would be facing losing positions. One way to try and mitigate this risk is to use multiple providers, preferably with different trading strategies/styles to achieve diversification. 


What is the minimum amount required to copy a trader?

There is no minimum amount of money required to start copy trading. You can start with as little as $100, although you might find that your opportunities will be limited with that amount of capital. 

If you do start with a small amount, you might want to narrow down your choice of signal providers to one, as you would otherwise exhaust your margin pretty quickly. Note that some signal providers specify a minimum investment amount to ensure the trades will be going through for the copier. 


Do I need prior trading experience to engage in copy trading?

Although no prior trading experience is necessary for copy trading, doing so requires a solid understanding of CFDs, which are complex and high-risk financial instruments. Effective participation requires an understanding of leverage, margin requirements, and potential gains and losses. 


How much will copy trading cost me?

The Axi Copy Trading platform can be used free of charge, with the benefits of the same ultra-low spreads and lightning-fast execution that are a feature of traditional MT4 trading. Some signal providers will charge a subscription fee for their services, while others might provide it free of charge. This varies from provider to provider.  

However, keep in mind that even if a signal provider does not charge you anything, you still have to pay the broker's spread and/or commission (depending on the account type you have). 


Which copy trading platform should I use?

The Axi Copy Trading app allows you to easily connect to your MT4 account and start copying a variety of traders. The in-built leaderboard will give you quick insights into the top provider's performance and help you in choosing the one that suits you.  

It’s worth remembering that you retain full control over your account, meaning you can pause or completely disable the copy trading for each provider at any time. Furthermore, you can control your risk by either mirroring the provider's level of risk and position size or by setting a fixed size per trade. 

You can download the Axi Copy Trading app from the Apple Store and Google Play Store. 


Can other traders copy me?

Absolutely! You can sign up to be a signal provider so that others can copy your trades. Note that you may have to complete some additional documentation before you can start providing signals and charging copiers. 

Once the process of opening an account and connecting it to the copy trading platform is completed, you’ll see why copy trading is so appealing.

To give yourself a better chance of long-term success, you should make an effort to keep yourself educated in the markets and ensure you understand the risks involved, as well as the different risk parameters that can be adjusted prior to following someone's trades. 

Maintain strong knowledge of the markets by visiting the Axi Academy and enrolling in free online trading courses or see our updated guides on the Axi blog. 



Milan Cutkovic

Milan Cutkovic

Milan Cutkovic has over eight years of experience in trading and market analysis across forex, indices, commodities, and stocks. He was one of the first traders accepted into the Axi Select programme which identifies highly talented traders and assists them with professional development.

As well as being a trader, Milan writes daily analysis for the Axi community, using his extensive knowledge of financial markets to provide unique insights and commentary. He is passionate about helping others become more successful in their trading and shares his skills by contributing to comprehensive trading eBooks and regularly publishing educational articles on the Axi blog, His work is frequently quoted in leading international newspapers and media portals.

Milan is frequently quoted and mentioned in many financial publications, including Yahoo Finance, Business Insider, Barrons, CNN, Reuters, New York Post, and MarketWatch.

Find him on: LinkedIn


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