Nowadays there are many methods of alternative trading on the Forex market. Copy trading a method based on copying successful traders’ transactions using special software. The copy trading services are quite popular and more transparent than trading by the means of the Forex Expert Advisors. Let’s try to evaluate the pros and cons of the copy trading services.
Before reading the article and writing your questions in comments section, I recommend to watch this video. It’s not long, but covers biggest part of questions on the topic.
Advantages of the copy trading services
The copy trading service provides an opportunity to choose the most suitable trading strategy in accordance with the requirements each trader may impose.
A trader can see the results of the chosen trading strategy before the joining to the copy trading service. The copy trading service make it possible for you to see the daily update of the performance in contrast to the Forex trading robots service.
This data will provide a trader with the information about the trading tools, the number of profitable and loss-making transactions, the duration of the transactions, the maximum drawdown, etc. After a trader has done analyzing the target parameters, he can consciously pick a trading strategy.
The copy trading service eliminates the emotional part from trading since a trader doesn’t really care if he has performed a right or wrong entry to the market. The copy trading service does not require the client’s terminal to be always on the run.
Another important feature of the copy trading service is the opportunity to use parallel trading and manage the opened transactions. A trader can always close a trade by hand if there is any sign of the upcoming money loss or open a position if he sees a strong signal to enter the market. However, you should understand that any adjustment might affect the managing trader’s strategy, which will play a critical role for the client.
Disadvantages of the copy trading services
The market is always in the move, so you cannot just join the copy trading service and always gain profit. You should constantly monitor the market dynamic. Copy trading is not a full-scale investment to this extent. The client is the one who controls over the account since the managing trader does not give a curse about it. Therefore, it is necessary for you to monitor constantly the market and the state of your account.
The trading results are relative since they are only correct for a certain account (the managing traders’ account). Therefore, it is very important to determine correctly the parameters of copy trading in dependence to the ratio of the size of deposits, leverage, etc.
We use the term “a managing trader” for the sake of convenience and it is actually incorrect since such a trader handles transactions using his own account and money and the client just copies those transactions to his account by the means of the service. A “managing trader” often doesn’t even know the number of the clients copying his transactions.
Therefore, we can make a couple of conclusions now. First, a managing trader doesn’t bear the responsibility for any pecunial losses of his client in contrast to the PAMM-account manager. Second, a few loss-making trades may lead to a small drawdown of the managing trader’s account while a client’s deposit of a smaller size may simply cease to exist.
I think we should state the difference between the PAMM-account service and the copy trading service on the Forex market. PAMM-accounting is a real investment in the Forex market when a client trusts his funds to the PAMM-account manager with all that it implies. The copy trading service just opens the same positions that the managing trader does. In fact, it is not an investment but it is still a high-popular method of alternative trading on the Forex market.