Binary options copy trading is easy right? All you have to do is pick a winner and make a million? If that’s what you think then you must read this now!
Some Tips For Copy Trading Success
Copy trading is actually potentially one of the riskiest things you can do with binary options. Especially if you approach it with the wrong frame of mind. Believe it or not, it is not as easy as it sounds and it does take some strategy. Assuming of course you have chosen a good platform.
For more information on individual platforms we suggest you check out the reviews. There are dozens of available platforms, many of them little more than gimmicks to attract traders. One platform we can recommend is Signal Hive which was voted best binary options signals provider for 2015, 2016 and 2017.
Another alternative to binary options copy trading, is the social trading network eToro. They offer traders the ability to copy other traders, but do not offer binary or digital trades. Below is a video explaining the concept:
Risk Management When Copy Trading
Copy trading is just like any other kind of trading; you have to spread your risk around. Blindly copying is not the way to go. Just because a trader you like has a great record doesn’t mean that will continue, or even if that trader will be trading when you want them to.
For this reason alone it is a smart idea to follow more than one trader but there is still risk in that. You don’t want to use more than one trader if they are trading the same asset, you need to pick 3 to 5 assets and find traders you like for each. This way you are diversified in two ways;
- First, you are not relying on any one trader
- Second, you are not locked into only one asset.
This way if one trader or one asset starts to lose money you still have four that are doing OK.
When looking for a trader to follow build a list of possibilities for each asset. If you were the coach of a football team you would want to have a first string and second string right? The same idea applies here.
Obviously you want to pick the best one of the group, the one with the most logged trades and highest win rate would be my suggestion (over a long time frame), but you will want to have a back up for “just in case”. It’s possible that the trader you like best isn’t trading enough, hits a losing streak or simply falls behind in the rankings. When this happens its time to rotate them out of your portfolio and rotate in a fresh trader.
When choosing assets try to avoid unwanted correlations. Correlations are when two assets are affected by the same catalysts. They are primarily found in forex pairs like EUR/USD and USD/JPY which, in this case, move opposite of each other. It is impossible to avoid all correlations, the market is intricately entwined, but you can avoid obvious ones.
The reason is simple; it defeats the purpose of diversification. My suggestion is for a copy portfolio to look something like this;
- An Index
- A Stock
- Two non-related Currency Pairs.
The final tip and perhaps the most important is to manage your trades and your traders. Use the risk controls provided by the platform, they are there for a reason. Simply put, this means don’t just follow a trader and sit back and forget it. Keep your trades small, I suggest using only 1-3% of your account per trade, and follow for short durations only. If not, even with a great platform and a good trader, you could come back to find your account wiped out.
Copy Trading with Robots
Copy trading via a robot increases risk. Automated trading means you lose complete control of your trading. There are risk management tools that can be put in place – for example limiting total losses, or the number of losses in a row. It is vital these tools are used. If the service does not offer them, look elsewhere.
Some Final Thoughts
Copy trading is OK. It’s OK to follow someone else success but you have to be smart about it. The first line of defence is picking the best platform. The next step is to actively copy trade and the above tips can help. Don’t be a greedy and blindly follow the hot trader of the moment. Take control of your trading and be successful. If you learn something along the way even better.
Copy Trading At eToro
(note: eToro are not able to accept US based traders)
eToro are the market leaders in social trading and copy trading. As the biggest social network, they have the largest number of active traders. This is key. There are a huge range of traders, trading all sorts of assets. Coupled with that, the firm also offer ‘CopyFunds’. These allow traders to copy an entire fund – the fund might be made up of assets, or indeed of traders who trade certain assets.
Risk management is also built in to the eToro platform with risk scores for every trader, and numerous settings that help copy traders control the amount of risk they expose themselves too.
Below is an area where you can search the eToro network for traders. Use the filters to narrow down the traders you are interested in:
- “From” – Where is the trader based?
- “Trade In” – What assets do they generally trade?
- “Gained At Least…” – What minimum gain, or profit, have they made (in percentage terms)?
- “During” – Over how long should the trader have made gains?
The last filter is an important consideration. Many traders can show a profit over a short period, but those that show consistent profit over the long term offer a safer investment, but perhaps a lower gain.
There is also an advanced filter to make the search even more selective.
Once you find a list of traders that you are interested in, you can click on them to drill into the detail of their trading – how often they trade, monthly performance and whether they are currently active for example. You can also see their current trades.
Search the list of traders here: