Copy trading: What is It? Describing and Comparing with PAMM
4 minutes for reading
In this review, we will get acquainted with a popular way of trading that allows you to earn on copying the trades of professional traders, which is called copy trading. It suits those who are not ready to devote themselves to trading fully but who want to make a profit using the experience of successful managers.
What is copy trading? How to make money on it?
Copy trading is one of the ways of investing that implies copying on your account the trades of experienced traders. The mechanism is quite simple and easy to master.
First thing, you need to make up your mind about the service you will be using. Most services are based on well-known broker companies. In one of our previous articles you can find the criteria for deciding upon choosing the company.
Upon registering in the chosen system, you need to study trading in detail and choose one or more trustworthy traders and launch copying their trades on your account. You also must set the parameters of copying, limit the risks and specify the fee for the manager.
You must choose the trader with great accuracy. Make sure they have a good trading history (the longer, the better), the profit level satisfies you, the maximal drawdown is acceptable, and the deposit increase is stable. To diversify risks, you can join several successful managers with different strategies.
Later, you will be able to follow the copying of trades to your account in real-time. If with trading your deposit grows, congratulations: you have made the right choice. If the balance shrinks, and the statistics of the trader’s work worsens, you will have to think about changing the trader.
The difference between copy trading and PAMM
Apart from copy trading, there is also such special program as PAMM.
PAMM stands for Percent Allocation Management Module. This is special software that helps a trusted manager unite the investors’ money on one account and allocate the profit by some set conditions between all of the investors.
Which is better: copy trading or PAMM?
We cannot decide once and forever which type of investing is better because each has its peculiarities and never gives a 100% guarantee of success. Based on your approach to investing, you need to decide which type of investing will be optima;l for you personally. In copy trading, there are the following characteristic features:
- The main advantage for the investor is that trading goes on their account, and they do not have to deposit the manager’s account. This enhances the control over your money and allows for using additional bonus programs and services (such as “Cashback (Rebates” and other).
- The drawback is that the execution prices are not always the same for the trader and the investor because you copy the signal from the trader’s to the investor’s account.
- Copy trading does not require a special trader’s license which is normally required for a PAMM service. So, you can choose from a larger number of traders.
- The settings of copying are flexible.
- The system of copying is simple and transparent for traders and investors.
- You can copy traders without installing a trading terminal.
- You can reject copying yourself at any moment.
Closing thoughts
Copy trading is a modern and popular way of earning money on financial markets. It allows you to make a profit using the experience of trustworthy traders that have demonstrated impressing results. Anyway, the statistics and the stability of the trading of your manager are to be assessed attentively before launching the copying service.
The parameters of copying must also be set with much care, such parameters being the volume of copying, the maximal drawdown, the trader’s fee, etc. In the next article, we will discuss copy trading in detail on the example of the investment copying platform CopyFX.
