Copy trading

Copy trading enables traders in the financial markets to automatically copy positions opened and managed by a selected investor, usually in the context of a social trading network.

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.

The copying trader usually retains the ability to disconnect copied trades and manage them themselves. They can also close the copy relationship altogether.

Copy trading has led to the development of a new type of investment portfolio, which some industry insiders call "people-based" portfolios. People-based portfolios differ from traditional investment portfolios in that the investment funds are invested in other investors, rather than traditional market-based instruments.

Different copy trading platforms employ different copy trading logics. These usually vary in regards to the minimum copy trading amounts, the minimum amount for a copied trade, and the way money in/out operations on behalf of the copied trader are reflected in the proportions between the copied-copying accounts.

Some platforms also enable traders to place Stop Loss orders on the entire copy trading relationship, allowing traders to control the risk of their copy trading activity based on the individual copied investors

Various financial trading operators offer copy trading capabilities as part of a larger social trading platform. Social trading usually includes the ability to connect with other investors using the platform in social ways (comments, likes, link sharing etc.) as well as find potential copy trading candidates by viewing investors' performance statistics.

Some platforms also provide ways to sort and rank traders according to certain performance parameters, thus making it easier for traders to find potential investors to copy.

In the United Kingdom the Financial Conduct Authority (FCA) has raised concerns regarding copy trading as they deem the firms offer copy trading to be effectively unregulated investment managers. As such, the FCA has sent letters to those companies providing copy trading services notifying them of their intention to classify them as investment managers.

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Wikipedia