The Forex market is both the largest and most volatile financial market on the planet. Obviously this is incredibly attractive to new and veteran investors alike, especially thanks to the almost 24/7 access to the Forex markets as well as the super low barrier of entry.
These markets are fast-paced, everything seems to change on a moment to moment basis, and if you aren’t able to quickly decipher what the charts are telling you – and then execute your trading strategies on-the-fly – you’ll have a tough time feeling confident.
That lack of confidence transforms a lot of eager investors into gun shy traders, and they miss out on a whole world of opportunity (and potential profits) they might have been able to gobble up otherwise. This is a big part of why Forex copy trading has become so popular but is copy trading actually profitable?
Forex copy trading is profitable if you find a profitable trader to copy. The issue with copy trading is the fact there are a huge amount of unprofitable traders trying to make money from selling their trades. You are also completely at the mercy of other amateur traders, making it a risky investment vehicle.
Is Forex Copy Trading Actually Profitable?
Forex copy trading basically lets you “piggyback” off of the market research, trading strategies, and actual market moves other (hopefully successful) investors are making in real time.
Copy trading is exactly what it sounds like – you are copying the trades made by other investors!
Sometimes this is called mirror trading, sometimes it is called social trading. At the end of the day, though, the general principle is the same:
Duplicate trades (in real time) made by investors that have handle the heavy lifting of researching, chart watching, and strategizing the moves that they are executing.
But is Forex copy trading actually profitable?
It can be – it can be hugely profitable, in fact!
The wrinkle, though, is that you have to know who to copy trade with and who to avoid.
That’s a big wrinkle, too…
The Pros and Cons of Forex Copy Trading
There are a whole bunch of benefits to copy trading.
According to one of the leading Forex brokers in the industry today, 30% of newer traders (those with less than 12 months of experience) report that understanding the Forex market – and how financial markets work in general – is much too complicated.
Copy trading dramatically simplifies investing in Forex, showing newbies the “how” while giving them an opportunity to learn the “why” afterwards.
Think of this like trading with training wheels.
It’s easy to feel overwhelmed when starting something new, no matter what that is.
The stress, nervousness, and anxiety is only amplified dramatically when you’re talking about putting up your hard-earned money and investing it in a brand-new way you might not be totally comfortable with as a newbie.
With copy trading, though, you get to follow the blueprint of someone that has (ideally) a ton of proven success under their belt. You make the same trades they do at the same time that they do, and hopefully enjoy a similar windfall.
Copy trading software automates this process even more so, essentially transforming the Forex market into a “set it and forget it” kind of opportunity versus one that has to be watched like a hawk.
This kind of software turns Forex into an almost passive investment option, even.
Risk management is easier to handle with copy trading as well.
Instead of having to analyze everything that’s going on in the market and researching each individual trade, tracking charts in real time, investors only have two do research and due diligence into the success rate of the traders they are going to copy.
Combine that with the ability to control loss rates in Forex by having unlimited opportunities to bounce from one trader to the next and copy their moves in real time until you find one that meshes with your goals) and it’s easy to see why newbies and veterans leverage copy trading.
Is Forex copy trading actually profitable?
Are there downsides and risks, though? You bet!
The biggest risk of all is that you are completely beholden to the trades (and the methodology behind those trades) made by the investors that you are following along with.
If you hook up with the wrong investor, if the investor interprets the information or data in front of them incorrectly, or even if they just hit a bad stretch of worse luck you are going to be in the passenger seat right alongside them.
On top of that, really successful investors almost always charge a premium to copy trade their moves.
This will always eat into your potential profits, but you’ll have to pay the fee even if the trades go sideways and you take a loss.
You have to be certain that you are hooking up only with legitimate investors with great success rates – and even then you need to be smart about the trades you copy.
Should You Copy Trade or Learn to Trade Forex?
At the end of the day, there’s certainly nothing wrong with leaning on copy trading to help you get a jumpstart in the world of Forex. Especially when you are new!
This doesn’t necessarily mean that you shouldn’t try to learn the fundamentals of trading Forex, learning the ins and outs of technical and market analysis, or mastering the basics of trading Forex on your own.
These two things are not mutually exclusive.
A lot of successful traders leverage copy trading and learn how to trade on their own, mixing and matching the strategies to give themselves every opportunity to succeed.
Learning how to trade Forex on your own will also help you better understand the strategies you are copy trading in the first place.
You can use these copy trades to inform your own trading strategies, to help you hone your own research and due diligence, and to execute trades that you feel like doing all on your own.
This is the best of both worlds and makes you a much more well-rounded Forex investor. Having the ability to trade passively or actively (or both at the same time) gives you a lot more flexibility to capitalize on Forex opportunities as they come down the line.
It’s important to understand that learning to trade forex can take years so if you’re looking to get some skin in the game now, copy trading could be a great middle ground whilst you’re learning the ropes!
How To Vet A Trader Before You Copy Their Trades
When deciding on whether or not copy trading is for you, it’s important to completely vet a trader to understand their results, behaviour and experience within the markets.
I’d highly recommend using a platform like eToro as they have a great reporting functionality. As shown above, you’re able to completely understand a traders metrics over track records that go on for 5+ years, in some cases.
The investors are also able to ask the traders questions and have a live feed (like Tweets) of their thoughts and investment decisions in the coming months or days.
This is a great way to vet traders and understand what they’re looking at when they’re making investment decisions. I’ve said this many times but never just take someones word for their trading success – it’s important to see verified, third party track record.
Unsure About Whether A Trader Has Profitable Trades?
If you’re on the fence about copying the trades of a certain trader, I would highly recommend avoiding setting up a copy. In an ideal world, you need emotion to be completely removed from investing and if you’re concerned about the sustainability and profitability of a trader – this will provoke emotion.
If you’re still interested in testing the waters, you could setup a copy trading system using a demo account. This way you can run the trades for 6-12 months, gauge the profitability and decide for yourself whether it’s something worth investing real capital into.
Likewise, you could invest a very small portion of your overall capital. For arguments sake, let’s say a few hundred dollars. It’s worth noting that the majority of investors that allow other traders to copy their trades request a minimum balance of $1000, to allow for drawdown and the margin needed to open trades.
Which Copy Traders Should Be Avoided?
As shown by this eToro trader above, there are some traders that should be ignored. This exact trader had pretty average or inconsistent returns until they had a HUGE month and ended up banking a ridiculous 14,700% in May 2021.
This could have been the result of an admin error from eToro, or this could have been an extremely flukey trade. Regardless, this is not the kind of success that can be easily replicated due to it being somewhat of a black swan event.
I’d highly recommend avoiding these kinds of track records as you will most likely not see the same kinds of insane results.
In Conclusion – Is Copy Trading In Forex Actually Profitable?
In summary, forex copy trading is both a legitimate and profitable option for seasoned traders and novices alike.
The biggest thing to remember is that copy trading should not be the only strategy you use when trying to grow your wealth in Forex.
If you become complacent or reliant on other people’s skill sets, good fortune, or even just the data provided via copy trading you are going to open yourself up to failure.
The only way you are going to be able to properly leverage trading is by constantly learning, researching, testing out new strategies, and analyzing this massive industry even more thoroughly than the Wall Street banks do.
Have you had success with copy trading in forex? Let me know in the comments below…