For people who are nervous about trading and investing in stocks and foreign currency, copy trading platforms offer an added layer of confidence without infringing on your independence.
Copy trading is one of many products of the rapidly-growing financial technology industry that are helping to democratize the world of finance and investment, bringing more accessible opportunities to ordinary people. These copy trading platforms allow users to manage their own money, but with the guidance and input of fellow investors and traders.
These sites are built as social networks, allowing users to view the investment profiles of other members, and see what shares they have bought and sold and what gains and losses they have made.
This lets users copy the investment and trading decisions of other members. When you find a trader who appears successful, you can allocate a portion of your money to be automatically invested the same way. Or, users can simply follow other traders and receive alerts about moves they make, deciding on an individual basis if they want to copy the move.
Among the benefits of this system is that users no longer need to rely on financial advisors who charge high commissions. And the social-network design of such sites allows for transparency, seeing exactly how much others have gained and lost and where they have been putting their money; something that would not be available about fellow clients of your traditional financial advisor.
Because the platforms are often trading certificates for a difference, of CFDs, which are derivatives based on stocks, rather than the actual equities, there are also more opportunities for leverage. In addition, investing in CFDs also allows users to make a profit from the falling price of shares or currencies.
Unlike in traditional markets where investors buy assets hoping their price will go up, copy trading platforms allow users to invest in the possibility of prices going down.
Of course as with any investment there is also a risk of loss with copy trading.
But many platforms also include certain safeguards, such as asking members the maximum amount of losses they feel they can sustain, and implementing a mechanism that cuts off trading when indexes fall below certain levels.
Copy trading is just one example of how technology startups are drastically changing the world of money and investing, opening up to everyone what were once exclusive opportunities for experts and Wall Street firms.