These days, there are a lot of different ways that you can trade, two of the main ways that people trade include manual trading the art of performing all the market analysis yourself and then placing the trades, ad copy trading, the simple act of finding a trader that you believe has a good strategy, and simply copying their trades onto your own account. The latter is fastly becoming one of the more popular ways to trade with multiple platforms appearing allowing people to copy other traders’ trades. We are going to be looking at the advantages and disadvantages of both so you can compare which method of trading may be best suited for you.
If we start by looking at manual trading, this is the traditional style of trading that you see in the movies or have most likely read about online. This form of trading involves you looking at the markets, working out the direction of your trade, and then placing your trade in line with your strategy and any risk management plans that you have in place. There are a number of different advantages when it comes to manual trading, the first point to make is that when you are trading in a manual manner, you are less susceptible to certain events such as economic news, simply because you are in control of your trades and can decide not to put any trades on during these times.
You are also able to perform better than a computer in regards to placing trades, simply due to the fact that you have experience, your own intuition, and are able to make decisions based on real-world events that a robot may not be able to. The other main advantage is simply the fact that as a human trader you have the ability to analyse more variables that influence the markets whereas a computer will not be able to.
Having said that, there are also some disadvantages to trading in a manual manner, this includes the fact that as a human, you are prone to emotions, these emotions can have an effect on your trading and can potentially cause you to make mistakes. Trading can also take a long time, time that you do not always have and so you may need to make sacrifices to other parts of your life to trade properly. Due to this, he may also have to sit at the computer for long periods of time, making it a little boring if nothing is happening. Your trading will also be limited to your availability, you can only trade when you are there at the terminal, so this will be limited by things like sleep and work.
So that is manual trading, but what exactly is copy trading? There are actually a few different versions of copy trading including, signals, mirror trading, and social trading. Each one has a similar concept, you are finding a trader and then simply taking their trades and putting it onto your own account, hence the term copy trading. It takes a lot of responsibility, but you are putting your accounts and trades in the hands of someone else. So let’s take a quick look at the different versions and advantages of these trading methods.
Specifically for copy trading, there is a master account that is controlled by a person. Then there are then a number of copy or save accounts that are linked to that original account. When a trade is placed on the master account, it is automatically copied to the copy accounts. The advantages of this sort of trading include that you can trade with very little knowledge of forex, there is no need for you to monitor your trades all day long, you won’t miss any trades as you are taking the same ones as the trader is, you have the opportunity to learn from the taker by watching what they are doing, you are also able to diversify your portfolio while at the same time keeping your risk low.
There are of course some downsides to copy trading, these include the fact that your account is out of your control, you are automatically copying trades, so if bad trades are made, you will make them too. You also can’t make any decisions based on your own findings or initiatives. Finally, you won’t gain as much knowledge and experience simply copying someone rather than doing the work yourself.
There is also mirror trading. It probably sounds pretty similar due to the names of copy and mirroring. The main difference is that with copy trading you are copying from a single trader, with mirror trading, you are taking trades from a basket of traders, you don’t necessarily have a choice of which traders and which trades to mirror, just that you will get some from that basket of traders.
Some of the advantages of this style are the fact that it does not take a lot of time at all, the trades and analysis are done by other people. There is a reduced risk when compared to copy trading due to there being a choice of multiple traders rather than just one. The potential for consistent profits are higher and can be expected due to the trading models generated from mirror trading, there are also no emotions when trading like this as they cannot affect the trades that are being put on.
There are of course some disadvantages too, including the fact that you are not in control of the trades that your account is making, the algorithms used to choose the trades are also often not known which can make it hard to know why certain trades are being made. It is also important to note that this form of automated trading is not recommended for beginners, as you need some form of understanding when choosing which traders to have in your basket.
The other style of trading is social trading, this is a mix between the other two, this is where there is a kind of marketplace where you can view other traders or trades and choose which ones to copy, it gives little more control over what you trade and copy.
The advantage of this style of copy trading is that you have more control over what you are trading. You are also able to engage with other traders, getting and giving ideas on trades, and working out different reading strategies. There is often more information available on the traders so you can better analyze their trading strategy to work out exactly what you want to trade.
There are once again some downsides, including the fact that it can take a long time to work out who to follow due to the amount of analysis that you will need to perform, you may also miss opportunities for trades if you are not at your computer, some traders and news events can have more hype than expected, giving a false sense of confidence in certain traders and some of the social trading platforms can have transparency issues, keeping their workings and costs hidden from the copiers.
So that is manual trading and copy trading, there are advantages and disadvantages both, you need to work out which one will work for you, or maybe even try a little bit of both. There Is no harm in trying multiple methods, as a beginner, copy trading is perfect, but it is always good to learn on the side so that you can later be an independent trader with the ability to trade fully yourself and not have to rely on others.