Copy and Social Trading – Ultimate Guide

Copy trading emerged in the mainstream with the launch of platforms like ZuluTrade (2007) and eToro’s OpenBook (2010). With the ensuing technological advancements, regulatory developments, and rising demand for innovative financial products, copy trading has grown into a multi-billion-dollar global industry.

What is Copy Trading?

Copy trading allows people to automatically follow and replicate the trades of experienced and successful traders in real time. It frees traders from having to make their own decisions and enables them to take advantage of the expertise and strategies of seasoned traders.

All trading activity of the copied investor is automatically executed in the copying trader’s account based on the amount of money the copying trader has allocated.

Copy trading is flexible. The copying trader usually has the option to take over and manage copied trades on their own. They can also simply stop copying whenever they choose.

Mirror and Social Trading

Mirror trading and social trading are closely related, so let’s define those also.

• Mirror trading replicates the trades of an algorithmic trading strategy. When an investor chooses a strategy, all trades generated by that strategy are automatically mirrored in their account.
• Social trading combines copy trading with social community features. Investors can follow and replicate the activity of other traders while at the same time engaging in discussions and sharing ideas.

Mirror, Copy, and Social Trading – Comparison

The table below compares the characteristics of mirror trading, copy trading, and social trading.

Benefits of Copy Trading

Copy trading has several important advantages, especially for people with little experience in the financial markets.

• Beginner-friendly: You don’t need experience to get started, other than understanding the performance statistics of the investor you want to copy.
• Saving of Time: You don’t need to do market analysis or be glued to your monitor.
• Learn from Live Market Activity: By observing the trades executed in your account, you can gain valuable insights.
• Diversification: By copying multiple investors, you can easily diversify and spread your risk across different trading styles and strategies.
• Lower Stress: Having an experienced trader with a proven track record managing your account relieves tension.
• Flexibility: You can take over the management of specific trades or stop copying whenever you want.
• Transparency: Detailed performance statistics of investors are freely available, so you can make an informed decision before choosing who to copy.

Find your perfect fit in our dedicated guide to the best copy trading platforms.

Risks of Copy Trading

• Risk of Loss: The investor you are copying could experience a downturn in their performance, leading to losses in their account and whoever is copying them. As the famous disclaimer states: Past performance is no guarantee of future results. Even if a trader has been successful in the past, this does not guarantee the same results moving forward.
• Fees and Costs: Some platforms charge fees for copy trading, which can cut into your returns.
• Technical Issues: Platform glitches or connectivity issues can disrupt your copy trading and result in missed opportunities or unexpected losses.
• Over-Reliance: If you want to become a successful self-directed trader, relying entirely on copy trading could slow your development.

Top Copy Trading Platforms

Collective2

Collective2 is a pioneering platform offering a marketplace for trading strategies. The platform is focused on transparency, automation, and community to provide the optimal experience for strategy developers and investors. The primary focus is on algorithmic strategies that trade stocks, options, futures, and forex. Users can subscribe to strategies on Collective2 for a flat monthly fee. Strategy managers are paid a fixed fee for every subscriber replicating their trades.

• Foundation Year: 2001
• Headquarters: New York
• Platform Type: Automated trading platform
• Available Assets: Real Stocks, Options, Futures, Forex
• Costs: Subscription fees
• Regulation: Registered with CFTC and NFA member
• Minimum Deposit: Varies by strategy provider

On Collective2, you can get started with some strategies with a few thousand dollars. Many other strategies on the platform require between $10,000 and $30,000. The strategy statistics available include advanced metrics like the Sharpe Ratio, Sortino Ratio, Correlation with the S&P 500, Beta, and Alpha.

Brokers that support Collective2 include industry leaders like FXCM, IG, StoneX, and Interactive Brokers. Client funds remain in their brokerage accounts at all times, and strategies can be started and stopped at any time.

eToro

eToro is a global leader in copy trading. The launch of eToro’s OpenBook platform in 2010, which included the CopyTrader feature, marked a major milestone in the world of copy trading.

CopyTrader allows users to replicate the trades of top-performing investors automatically, and social networking features enable users to interact and share insights. eToro also offers Smart Portfolios – innovative, long-term investment portfolios, created by eToro analysts. These portfolios cover a wide range of themes, for example, drone technology or the gaming industry.

• Foundation Year: 2007
• Headquarters: London
• Platform Type: Social trading platform
• Available Assets: CFDs on Stocks, ETFs, Forex, Cryptocurrencies, Commodities, Indices, Smart Portfolios
• Costs: Spread fees, overnight fees, withdrawal fees
• Regulation: FCA, CySEC, ASIC, FINRA, FSA
• Minimum Deposit: $200

Copy trading is free at eToro: there are no additional charges for using the CopyTrader feature. You can start or stop copying and add or remove funds at any time. Popular Investors (the copied investors) are paid based on their AUC (Assets Under Copy), the total cash equity used to copy a trader.

Check out our comprehensive review of eToro.

ZuluTrade

Greece-based ZuluTrade connects to various brokerages and allows users to copy top traders. The platform offers advanced performance analysis data, customizable risk management settings, and the ability to follow multiple traders.

ZuluGuard is a unique feature that detects if a trading strategy has deviated from its expected loss profile. The platform has a solid community, and users can interact with the traders they are copying or follow a feed of trending posts.

• Foundation Year: 2007
• Headquarters: Piraeus
• Platform Type: Social trading platform
• Available Assets: CFDs on Forex, Stocks, Cryptocurrencies, Commodities, Indices
• Costs: Spread fees, performance fees, overnight fees
• Regulation: Hellenic Capital Markets Commission
• Minimum Deposit: Varies by broker

Users of the platform do not have to pay any fees for ZuluTrade. Leaders (the investors being copied) are paid based on either volume or profit sharing. Statistics include useful metrics like maximum drawdown, average trade time, and average profit percentage.

NAGA

NAGA is a social trading platform that combines standard trading, copy and social trading features. With an auto-copy feature, users can automatically copy the trades of top traders.

They can browse lists of top traders based on metrics like realized profit, profit for copiers, managed funds, and more. The social feed includes community discussions, a news feed, and market insights.

• Foundation Year: 2015
• Headquarters: Hamburg
• Platform Type: Social trading platform
• Available Assets: CFDs on Stocks, Forex, Cryptocurrencies, Commodities, Indices
• Costs: Spread fees, withdrawal fees, copy trading fees
• Regulation: CySEC, FSA
• Minimum Deposit: $250

For copiers to replicate trades of the Lead Traders, a fixed $0.99 fee applies, with an additional 5% fee if the profit from the copied trade exceeds $10.00. Lead Traders are paid for each profitable trade when it is copied by other traders on NAGA. Available statistics include win ratio, profit factor, average ROI by trade, and maximum drawdown.

MetaTrader

MetaTrader is a popular trading platform that offers copy trading through its signal service. MetaTrader 4 and MetaTrader 5 users can subscribe to signals from experienced traders and have trades automatically executed in their accounts. Signals from individual traders or automated strategies via Expert Advisors (EAs) are available.

• Foundation Year: 2000
• Headquarters: Limassol
• Platform Type: Trading platform with signal service
• Available Assets: CFDs on Forex, Stocks, Commodities, Cryptocurrencies, Indices
• Costs: Spread fees, commissions, possible signal subscription fees
• Regulation: Not regulated as a broker; individual brokers may be regulated
• Minimum Deposit: Varies by broker

Traders can select from over 3,200 free and paid signals found on the MetaTrader website and the Signals tab of the MetaTrader platform. Signal providers are sorted by their trading results, with the most successful at the top of the list.

Detailed performance data includes metrics like profit factor, recovery factor, and Sharpe ratio. Signal providers receive 80% of the subscription fee paid by subscribers.

Discover the lists of top MT4 brokers and top MT5 brokers.

Copy Trading Platforms Comparison

How to Evaluate a Trader or Strategy to Copy

To have the best chances of success with copy trading, it’s crucial to carefully assess the trader or strategy you plan to follow. Here are some of the key performance metrics to consider when selecting a trader:

• Maximum Drawdown: This measures the largest peak-to-trough decline in a trading strategy.
• Win Rate: The percentage of profitable trades compared to the total number of trades executed within a specific timeframe.
• Risk Reward Ratio: This ratio compares the number of winning trades to the number of losing trades.
• Profit Factor: The ratio of gross profits to gross losses or how many dollars of profit are earned for every dollar of loss. A profit factor greater than 1 shows that the trading strategy is profitable.
• Sharpe Ratio: Evaluates the risk-adjusted return of a trading strategy, considering both upside and downside volatility.
• Sortino Ratio: Evaluates the risk-adjusted return of a trading strategy, focusing specifically on downside risk.

In addition to the metrics above, it’s also important to consider the length of the track record. The longer the track record, the more meaningful the data.

The Bottom Line

Copy trading provides a powerful way to harness the expertise of successful traders. It represents a compelling option for traders who lack time, experience, and confidence. However, copy trading requires rigorous selection, careful risk management, and continual performance evaluation.