Forex Copy Trading: Advantages & Disadvantages

Is Forex Copy Trading Legal?

Forex copy trading is legal in most countries. You have to choose a trading platform that itself is regulated and offer forex copy trading services. If the broker is regulated and registered under the national trading authority or board of the country, the services provided by it are automatically considered legal. 

How Does Forex Copy Trading Work?

Through forex copy trading, a client can link a portion of their account to the portfolio of an experienced trader of their choosing. All of the experienced trader’s open transactions are copied to the client’s account once they have enabled the copy trading  feature. All future actions taken by the host are also instantly replicated to the client’s account. 

Depending on the trading platform, the client may have varying degrees of influence after they start imitating a trader. Some copy trading platforms have a fixed system whereby all activities done by the experienced trader are duplicated into the client’s account, with the client’s only option being to figuratively cease copying the actions. There isn’t any middle ground like picking a capital, or opting to exit from the trade before the experienced trader closes the trade.

On the other hand, some platforms are liberal enough to grant the copy trader access and rights of choosing the capital for trading, or leverage, or even choosing manually when to stop the trade even before the experienced trader does it. 

Advantages of Copy Trading  

For those who desire access to the forex market but lack the time and resources to study how to trade, copy trading is their saviour! Traders who want to trade in multiple markets can opt for copy trading as well. Not only does this method help in adding diversification to their portfolios, but traders also increase their earning potential. 

Disadvantages of Copy Trading

Copy trading from an experienced trader does not mean that there will be no losses and the copy trader will always be on a winning streak. Even an experienced trader faces losses. Risks are always involved in the forex market because no one can predict the market 100% accurately.

For a novice trader, copy trading is the ideal place to start. It enables a novice trader to immediately benefit from the knowledge of an experienced trader. Copying a skilled trader does not, however, imply that copy trading is risk-free. Hence, a copier should exercise extreme caution when selecting the trading platform and experienced traders to copy.