Beginners tend to be apprehensive about opening new trades in the market. Lack of knowledge and experience in foreign currency trading fails them when it comes to deciding high-earning positions from the not-so-profitable ones.
If you want to trade in Forex and don’t know how to get started, take your 1st step with copy trading. Copy trading is a relatively new concept, but is fast catching up as one of the major Forex trading strategies for newcomers.
What is a copy trade you may ask?
We’ve explained it below. However, before that let’s brush up on the basics.
For those unaware of how the Forex Market works…
The practice of earning by speculating on the values of currencies has existed for decades. The term “Forex” is a blend of the two terms Forex Exchange. This investment option involves buying and selling currencies in an attempt to earn from changes in the exchange rates of the respective currencies.
An exchange rate is the price of one country’s currency expressed in terms of another. Currencies are always traded in pairs. EUR/USD is a currency pair. The currency pair comprises a base currency and a quote currency.
The first currency quoted in a pair is the base currency while the second is the quote currency; here EUR – base currency and USD – quote currency.
When a trader buys a currency pair, he sells the quote currency to buy a base currency. The price indicates the amount of quote currency needed to purchase one unit of the base currency.
The base currency in one pair serves as the quote currency in another pair. The 4 major and most popular pairs traded in the Forex Exchange market are EUR/USD (Euro/US Dollars), USD/JPY (US Dollars/ Japanese Yen), GBP/USD (UK Pound Sterling/ US Dollars), and USD/CHF (US Dollars / Swiss Franc).
What is Copy Trading?
Now let us come to the main section of the article – Copy trading. As per this strategy, traders can copy the trades of experienced and knowledgeable traders in the Forex Market. These experienced traders are also called mentors. This usually occurs in the context of a social trading network.
Thus, small scale and beginner traders too can profit from another investor’s ability to foretell market movements. One can emulate an investor’s entire investment strategy or copy only individual trades.
In order to start dealing in foreign currency you have to first set up a Forex account with a broker. When you opt to copy trade, a certain portion of your funds gets automatically linked to the account of the mentor you desire to copy.
Every time the mentor trades whether it involves opening a new position, closing an existing position or issues a stop loss order to limit losses, your Forex account will copy every movement they make in proportion to the trading funds linked to their account.
Thus, if they profit, you profit too and vice versa. You can also follow several traders simultaneously.
Emulating different traders across several trading platforms is regarded as a better option to mitigate risks.
As a copying trader you have the right to stop copying other traders and dealing on your own whenever you wish to.