Copy Trading Definition: What Is Copy Trading?

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What Is Copy Trading? Definition

Copy trading definition: copy trading is a trading technique that involves copying or following the positions of another investor or trader. Copy trading automates a trading strategy by replicating in your own account what one or more traders do in theirs.

Copy trading is also known as social trading. This type of trading is particularly popular with beginners, who can learn a lot from it. If you also want to try copy trading, you can sign up with Vantage, a good broker to start trading with.

On related topics, our articles “Day Trading Definition” and “CFD Definition” are a good complement to this guide.

Copy Trading Synonyms

Copy trading goes by many names. Here is a list of terms that also refer to copy trading:

  • Social trading;
  • Mirror trading;
  • Copy;
  • Copy-trading;
  • Investment copying;
  • Copy-based trading;
  • Trade copying;
  • Portfolio copying.

Copy Trading Etymology

Copy trading is made up of two words: “copy” and “trading”. “Trading” refers to buying and selling, or dealing. Literally, copy trading means copying trades.

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Terms and Vocabulary Related to Copy Trading

Trading style – definition: a trading style refers to the way a trader carries out their trades. Copy trading is itself a trading style.

Warren Buffett copy trading – definition: Warren Buffett is a famous investor in the world of finance and a true role model for traders and stock market enthusiasts around the world. Some traders therefore practice copy trading based on his approach to investing.

Copy trading strategy – definition: a copy trading strategy is a showcase that a trader presents to other traders so they can copy it. To present a copy trading strategy, you need to use a platform such as MetaTrader 4.

MT4 copy trading account – definition: an MT4 copy trading account is an account through which a trader can use MetaTrader 4 and present their trading strategy.

Copy trading signals – definition: copy trading signals are a feature of the MetaTrader 4 trading platform that automatically copies other traders’ trades in real time.

Copy trading stop loss – definition: a stop loss in copy trading is a stop order that helps the trader avoid losses by closing the position when prices fall to a set level.

Copy trading take profit – definition: a take profit in copy trading is an order that lets the trader lock in gains when the market moves in their favor.

What Is Mirror Trading? Definition

Mirror trading is a synonym of copy trading. It is the original form of copy trading, which emerged in the 2000s. Mirror trading involves copying trades and processes through the trading platform offered by the broker.

With a platform such as MetaTrader, the trader can directly access various trading strategies to copy. They simply choose the strategy that suits them best, in other words, the approach that best fits their trader profile.

This form of copy trading is called mirror trading because it involves exactly replicating all the actions defined in another trader’s strategy. The trading platform copies them automatically into the trader’s account.

What Are the Different Types of Copy Trading?

As explained in the definition, copy trading is a form of trading that involves copying another trader’s positions. However, there are different ways to copy another trader’s positions. Here are the different types of copy trading:

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Automatic Copy Trading

Automatic copy trading involves copying a trader’s strategy. However, the strategy you copy must match your profile and the level of risk you are comfortable with. The advantage of automatic copy trading is that it automatically replicates everything the trader you copy does in their account.

Semi-Automatic Copy Trading

Semi-automatic copy trading involves monitoring a signal provider rather than replicating another trader’s trades. With semi-automatic copy trading, you choose which trades you want to take, based on the level of risk you are willing to accept.

Manual Copy Trading

Manual copy trading is a technique that involves manually copying the strategy of a more experienced trader.

What Is Social Trading? Definition

Social trading is a socially oriented form of copy trading. In social trading, you don’t just copy other traders’ strategies; you can also interact and share with them, hence the social aspect. Social trading is also known as “people-based portfolio investing”.

Social trading focuses more on trading in general than on one particular strategy. Users choose the traders they want to copy based on their profile, trading style or performance.

Social trading quickly became popular and has turned into a kind of “social network” for traders. Many brokers specialize in social trading, such as eToro. It is a broker perfectly suited to beginners who want to gain experience.

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What Is “Copy”? Definition

“Copy” in copy trading is an approach that lets you copy whichever of a trader’s strategies you want. All you have to do is decide how much capital to allocate to copying the trades.

With this system, you can adapt the copied trade to your capital. Stop loss and take profit orders are automatically activated and set according to your capital, although it is worth adjusting them manually to make them more effective.

Another feature of “copy” in copy trading is that you can stop copying trades at any time. In other words, you can take back control of your account and the capital you allocated whenever you want.

What Is Performance in Copy Trading?

Performance in copy trading reflects how effective copy trading is and its success rate. In other words, it is the percentage of winning trades by the trader you copied on the MetaTrader platform.

Performance signals can also be displayed directly on the trading platform’s charts. This is an effective way to monitor the copied strategy in real time. To improve your chances of success, you can learn to analyze these signals using a demo account with a broker.

What Are MT4 and MT5 in Copy Trading?

MT4 and MT5 are platforms on which you can copy another investor’s trades. They are trading software that make copy trading possible.

These platforms are also known as MetaTrader 4 and MetaTrader 5. They are among the most widely used in the world because they are so practical: MetaTrader offers traders many features to help them grow their gains. They are also the most stable software on the market, hence their popularity.

However, not all brokers offer these platforms, as is the case with eToro, which offers its own platform that is much easier for beginners to use.

Note that offering MT4 or MT5 is not a sign of reliability when choosing a broker. To avoid mistakes, only trust online brokers that are regulated for copy trading.

What Is a Signal Provider?

In copy trading, a signal provider is simply the trader whose strategies you have chosen to copy. When this trader takes positions in the market, everything they do is automatically replicated in your account.

Conclusion: Copy Trading Definition

To sum up, here are the key points to remember about copy trading:

  • Copy trading is done through a social trading network;
  • It is a very simple way to learn trading;
  • Copy trading makes it easy to earn money;
  • Copy trading is not risk-free: a bad investment can cause the trader to lose money;
  • There are three ways to copy trade: automatically, semi-automatically and manually;
  • Always choose a regulated broker for copy trading.

In short, copy trading is a tool that helps you better understand trading and invest in the markets with greater peace of mind.

Want to learn more trading terms? Discover our other definitions on Trader Francophone!

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