Mirror trading, also known as copy trading, is a trading strategy where you copy the trades made by another more successful trader to copy their success. Mirror trading allows anyone to trade like a professional trader. It can be a great way to earn a high return on your investments without having to spend a lot of time analyzing different stocks and other trading opportunities. Of course, this is important to help you get started in the stock market.
Is Mirror Trading A Scam?
Mirror trading is not a scam. Mirror trading is a trading strategy used to copy another traders trades. Multiple brokers allow you to use copy trading to copy other traders on their platform. To do so is usually free. You only pay the regular transaction fees on the trade you end up making.
Please be aware that some copy trading services charge a fee to give you access to their trades. These services charge you a monthly fee to provide you with the data needed to copy the trades they recommend. These services can often be rather expensive. Paid copy trading services are almost always scams with fake trading history. I recommend that you never use a paid or stand-alone copy trading feature. Only use the mirror trading features offered by large brokers such as eToro. They provide you with an honest undoctored trading history for all traders that you can choose to copy. This allows you to select a good trader to copy and prevent you from being scammed.
Is Mirror Trading High Risk?
Mirror trading is not high risk or low risk. The risk profile depends on what type of trades you choose to copy. If you choose to copy a trader that invests in high-risk financial instruments such as Forex or CFD trading, the mirror trading will be high risk. If you choose to copy a trader who trades low-risk assets such as blue-chip stocks, your copy trading will be low risk.
You do, in other words, decide how high or low-risk mirror trading is. It can be a great tool for low-risk trading but can also be used for high-risk trading.
Automated And Manual Trades
There are two different types of mirror trading, automated mirror trading and manual copy trading.
- Automated copy trading is, just as the name suggests, fully automatic. Trades are automatically performed in your account whenever the trader you choose to copy makes a trade. You do not have to do anything at all. Everything is done automatically.
- Manual mirror trading is entirely manual. You receive a notification whenever a trader you want to mirror makes a trade. You then need to log in to your trading account and make the trade if you’re going to mirror this transaction. This gives you complete control and requires you to act on notifications when you receive them.
I generally recommend that you use automated mirror trading if you want to mirror another traders trades. This allows the mirrored transactions to be performed instantly and at the exact same valuations as the original trades were made at. The delay caused by manual copy trading can make them less successful as the market value of the asset traded might have changed since the original trader made his trade and the time when you make your trade. A delay as short as a few minutes can significantly impact the success-fullness of a trade. I do not think you should copy another traders trades if you do not have enough confidence to use automated mirror trading.
Manual trading does give you more control but at the cost of many of the benefits of mirror trading.
The Difference Between Mirror Trading & Signal Trading
Signal trading and mirror trading can seem very similar at first glance. Do not be fooled by this. There is a significant difference between mirror trading and signal trading. Signal trading uses third party signals that you can choose to trade on. These third-party signals are often scams, and the historical results that the signal providers claim to have provided are often faked. I do not recommend signal trading.
Mirror trading is usually free to use, and a large trusted broker usually verifies the trading history. This makes mirror trading a lot more honest than signal trading and provides you with the tools you need to choose a good broker to copy. Remaining aware of these differences is critical to get a high return on investments.
Choosing A Trader To Copy
The success, or lack thereof, that you will experience while mirror trading is largely decided by which traders you choose to copy. Which traders you choose to copy is a crucial decision, and you must allow yourself some time to compare different traders before deciding which to copy. The more in-depth you analyze the traders you copy, the better your chance of success.
Always use a platform such as eToro to compare brokers that you want to copy. These provide reliable statistics of all trades the traders have done. This allows you to trust the data and make informed data. Trading statistic provided by the trader on their website is not a reliable source of information. They can easily manipulate this data to show better results than the actual results you would see if you decided to use their mirror trading service.
It can be tempting to simply copy the top-earning traders on the platform. But this is seldom a good idea. The trader with the best result this year will often be a trader that makes high-risk traders and has gotten lucky this year. There is nothing to say that the traders luck will continue.
You should, therefore, never look for the trader that is the current top earner of the year. You should instead be looking for a trader that has produced a good stable return over several years. You want to find a trader that is able to make good trades that nets a good return continuously. You should look at the last 3 (or preferable 5) years and chose a trader that you can rely on to copy. A lucky trader might have used up his luck, but a skilled trader is likely to remain skilled. You should therefore find one, or preferable several, skilled traders to copy. These will produce a high return over time.
I recommend that you choose to copy a trader that invests in stocks and other medium-risk to low-risk financial instruments. Avoid copying traders that invest in high-risk instruments such as Forex trading or CFDs. High-risk instruments can earn a higher return, but there is also a higher risk that you will lose your money. Low-risk stock is a better investment for most people. Only choose to copy a high-risk trader if you can afford to lose the money you invest.
Mirror trading can be a potent tool to use if you want to earn a high return while remaining hands. Mirror trading does in many ways compare to investing in mutual funds, but a single trader handles the transactions instead of a fund manager. There is also a significantly large selection of different traders to copy; then there are mutual funds to choose from. Mirror trading will also allow you to invest in more speculative types of trading as you can choose to mirror a trader trading crypto or Forex. There are very few funds like this available to retail traders.
Mirror trading can be profitable and can allow the uninitiated to earn a higher return than they would otherwise be able to earn. It is, however, essential to remember that you are not guaranteed to make money. All investing and trading is associated with risk, and you risk losing money while mirror trading. How large the risk of losing money is, depends on which traders you chose to copy. The risk can be mitigated by choosing to copy a low-risk trader but the risk can never be eliminated.