Exploring the Pros and Cons of Copy Trading for Beginners
Introduction
Copy trading is a branch of social trading where another trader’s account copies the position of one trader while they are opened or closed. Initially, copy trading is automatic or manual and depends on an individual’s decision on how they would like to approach copy trading. Copy trading is an investment strategy that allows individuals especially beginners in trading to copy the trades of more experienced or successful traders. This approach appeals especially to beginners due to their lack of knowledge, time, and experience in making their own informed decisions. This discussion has greatly focused on evaluating the potential advantages and disadvantages faced by beginner traders in trading.
Exploring the Pros and Cons
As the forex market is one of the biggest and the most liquid markets internationally, the forex market is extraordinarily attractive for copy traders. Copy trading is one type of trading that appeared in the mid to late 2000s and thereafter it has grown and expanded its popularity. Moreover, other markets such as stocks and cryptocurrencies are also utilized for copy trading. Although copy trading is an exciting and enticing option for newbie traders, it has some advantages as well as several difficulties, especially for beginners. Here we are going to discuss the prominent advantages and critical disadvantages of using copy trading for beginners.
Advantages
- Accessibility
Beginners can get the opportunity to trade accurately as no prior knowledge or experience is required while making copy trading. Rather, it makes great for novice traders.
- Diversification of portfolio
One of the best advantages of copy-trading is gaining access to many markets and trading styles as a rapid range of traders provide signals for copy-trading. In the case of seasoned traders, it makes copy trading easier and more useful due to allowing traders to access markets even if they have no previous knowledge or experience about trading.
- Access to another trader’s competency
At the beginning of the trading journey, novice traders can do copy trading as it permits them to benefit from another experienced trader’s knowledge and market experiences.
- Avoiding emotions from trading
As controlling emotions while risking a beginner’s own money is very tough and critical, but essential to avoid, copy trading removes this problem by providing the idea of automated trading. This automated trading helps traders avoid emotions to affect results.
Disadvantages
- Market Risks
As predicting the market is too hard, novice traders may face losses at any time. A trader who was winning yesterday can bear losses tomorrow. Thus, Beginners should think about trading after knowing the risky situations or uncertainty of markets and also remember that past performance does not indicate future performance in trading.
- Possibility of over-expenses
Copy trading is more expensive than regular trading. It is because, sometimes, signal providers charge a large upfront fee and also take a commission for copying every single transaction. So, in this case, as a beginner in trading, you must be conscious about your broker’s spreads which can eat up profits. Therefore, one of the vital cons of copy-trading for beginners is carrying excessive expenses to copy-trade at the initial stage of trading.
- Over-dependency on others
A key drawback of copy trading is overreliant on other trader’s performance. In this circumstance, if the traders suffer from losses, then the beginner who follows the experienced trader also experiences similar results.
Conclusion
Copy trading is a vital insight in trading especially for beginners. Based on the overall evaluation of the concept of pros and cons of copy trading for beginners, it is concluded that there are several advantages as well as some possibilities of risks that appear in copy trading, especially for beginners. However, the eventual suggestion is before you think and set your mind to start trading, then take risks and move forward in the trading journey by keeping aspirations of meeting goals.
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