Copy-trading refers to the practice of copying the trades of another trader. You can do it physically by following the other trader’s moves and making the same trades, or automatically, using specialised software that copies the other trader’s actions.
Copy-trading has many benefits, including learning from more experienced traders and potentially making higher profits. However, risks are also involved, such as losing money if the trader you copy makes terrible decisions. If you’re thinking about copy-trading on the Sydney stock exchange, it’s essential to do your research and understand the risks and rewards involved.
What are the benefits of copy-trading on the Sydney stock exchange?
You can learn from more experienced traders
One of the great things about copy-trading is learning from more experienced traders. By following their trades and seeing how they react to different market conditions, you can develop your trading strategy and improve your skills. Click here to see the stocks on offer when you trade in Australia with Saxo markets.
You can make higher profits
Another benefit of copy-trading is that you have the potential to make higher profits than if you were trading on your own because you’re effectively piggybacking on the success of the trader you’re copying. Of course, there’s also the potential to lose money if the trader you’re copying makes terrible decisions, so it’s essential to understand the risks involved before you start copy-trading.
You can trade without emotion
A big obstacle for any trader is managing their emotions, such as fear and greed. When you’re copy-trading, you’re following the trades of another trader, which means you don’t have to make any decisions yourself. It can help you avoid emotional trading, leading to bad decision making.
You can diversify your portfolio
Another benefit of copy-trading is that it can help you to diversify your investment portfolio. By copying the trades of multiple traders, you can spread your risk and potentially increase your chances of making a profit.
You can get started with little capital
Another great thing about copy-trading is getting started with very little capital. Therefore, you’re only investing a small amount of money into each trade, and you’re not responsible for the entire trade.
Risks of copy-trading on the Sydney stock exchange
You could lose money
The main risk of copy-trading is that you could lose money if the trader you’re copying makes terrible decisions. If the trader you copy consistently loses money, you’ll likely lose money.
You could miss out on potential profits
Another risk of copy-trading is that you could miss out on potential profits if the trader you copy doesn’t trade often. If the trader only trades a few times per week or month, then you’ll have fewer opportunities to make a profit.
You might not understand what you’re doing
If you don’t go to the effort to understand how copy-trading works, then you might not know what you’re doing, which could lead to you making bad decisions and losing money.
A trader with a bad reputation could copy you
If you’re copy-trading, there’s a risk that a trader with a bad reputation could copy you, which could damage your reputation as a trader and make it difficult to find other traders to copy.
Tips for copy-trading on the Sydney stock exchange
Do your research
Before you start copy-trading, it’s essential to do your research. It includes finding a reputable trader to copy and choosing a platform with which you’re comfortable.
Start with a small amount of money
When you first start copy-trading, it’s good to deposit a small amount of money into your account, and it will familiarise you with the process and minimise your risk.
Monitor your account regularly
As mentioned above, it’s essential to monitor your account regularly when you’re copy-trading. It will help you ensure that the trader you’re copying is still performing well and that your positions are still profitable.
Have a plan
When you’re copy-trading, it’s crucial to have a plan., which involves knowing how much money you’re willing to invest, how long you’re willing to wait for profits, and what you’ll do if things go wrong.