Is copy trading a good trading strategy?
Asked 4 years ago
How do I know if the strategies I'm copying are good and effective? What is the risk associated with this method?
Andia Rispah Igobwa
Monday, December 06, 2021
Copy trading is a high-profit social-trading strategy if the trader finds an accurate copy to follow.
However, they may face market risk with unsuccessful trades and liquidity issues in volatile markets. Liquidity issues are due to illiquid instruments being traded by other traders on behalf of themselves and steep fluctuations within that product's prices like sharp declines or rallies happening among different products belonging together under one umbrella term called "market risk."
Lastly, every successful trade executed through copy trading will have systematic risks included depending upon what has happened over time regarding global economic conditions outside your control. But they can be impacted just enough such that their performance suffers mightily and potential returns from previous successes will decrease too.
Despite the disadvantages, copy trading can still be a profitable strategy for traders if they find an accurate and successful trader to follow. However, it is important to be aware of the risks involved before starting to copy trade.
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