Unlike mirror trading, a method that allows traders to copy specific strategies, copy trading links a portion of the copying trader's funds to the account of the copied investor. Any trading action made thenceforth by the copied investor, such as opening a position, assigning Stop Loss and Take Profit orders, or closing a position, are also executed in the copying trader's account according to the proportion between the copied investor's account and the copying trader's allotted copy trading funds.
These days, most decent traders would have their performance displayed for the world to see and better yet, for anyone to copy. There are 2 main groups of forex traders, the first are those who like to attend forex trading seminars and attempt to trade currencies manually on their own. The second group are those who just want to make money with as little learning as possible. For the latter group trade copying or mirror trading is the perfect solution.
The way copy trading is conducted can be widely variable on the platform you choose. However, the basic principle remains the same. You invest a part of your portfolio in a certain trader and copy all their trades in a percentage-based manner. In the interest of diversification, most sites wouldn’t allows you to invest more than 20% of your portfolio in the hands of a single trader. This is a very good policy because sometimes traders seem better than they are or they simply hit a bad streak. When that happens, you don’t want to have invested too much in them.
If you can explore various trade copy services you can find out some key challenges when utilizing such websites: You will realize that many of the traders on such sites are punting and betting that their trader is successful once they begin copying their trades, and have absolutely no idea how or what the trader is trading. There is habit of a herd mentality with the assumption that a trader with many followers should be good. There is often insufficient information on such sites for anyone to make an informed decision as to whether or not to invest in such systems.
At the end of the day, it is still a human at the other end managing trades. Even if you are copying an expert advisor, there is a person who is ensuring the EA stays online. Since the person you are copying is often half way around the world, there is always the chance that he or she makes a mistake which wipes out the account. In other words, you can’t really know who you are investing with.