Copy trading is a relatively new concept in retail Forex trading and its popularity has increased considerably in recent years. The concept behind copy trading – especially in the foreign exchange market – is that the process offers the ability for online Forex traders to retrieve information gathered from other traders and to use their combined experience and knowledge to trade their own accounts.

Social commerce works the same way as other popular social networks, such as Facebook and Twitter, where individuals always communicate directly with other people, wherever they are. And as with these other social networks, there are advantages and disadvantages to using them.

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The advantages of copy trading in the foreign exchange market

The most obvious benefit of social commerce is that it is easy. By monitoring and tracking other traders and basing their operations on the professional decisions of the most experienced traders, individual Forex traders do not need to carry out their own technical or fundamental analysis. It’s like having the answers to a test before the teacher even gives the test questions!

With copy trading, both amateur and non-amateur Forex traders are instantly associated with thousands of other traders in an environment where they can interact with each other, discuss points of view and then duplicate the trades they deem most appropriate. At the same time, both novice and experienced traders can learn how top performers make their decisions and which strategies they use that work better than others in their endeavours to make profits while limiting the risks to their overall portfolio.

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Another important benefit of copy trading brokers is that when trading as a member of a group or community rather than as an individual, it is easier to avoid personal bias which often leads to losing positions. As a member of the group, it becomes much easier to see the evolution of market activity from a more impartial perspective. For example, a trade that begins to show a loss can trigger emotional reactions in a trader which often lead to bad trading decisions later on. When traders work together as a unit, it is easier to discuss and analyse market activity as it occurs and make better decisions.

Finally, by opening trading to the public, copy trading acts to ensure that Forex trading is no longer a tool normally reserved for high-level brokers and multinational banks. And since all transactions made on a copy trading platform are copied directly, no one can intervene in a trader’s transactions, so there should be more transparency. While all platforms offer similar services, not all are equally beneficial, so take a look at warning pages like this one with IqOption to make sure you know where to invest your money.

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Disadvantages of copy trade in the foreign exchange market

Copy trading allows for a free exchange of information for individual investors and small investors. And while this is certainly an advantage, it could prove to be a disadvantage. Since only a small number of traders are consistently successful using trading social networks, a trader can follow the wrong trader and end up with losses rather than expected profits.

One major drawback of copy Forex trading is that it is still relatively difficult for a trader to choose the right social platform. There is no shortage of networking platforms and this makes the choice difficult for a trader. And while Forex copy trading is not a scam, some copy trading scammers break the rules and an unsuspecting trader can easily be scammed. Choosing the right trading platform is the key to copy trading, but it’s difficult and traders aren’t always smart enough to decipher good from the bad.

It is not just the broker or the underhanded company that can use a good platform for scams. Traders also need to be careful who they choose to follow, as there are also untrustworthy individuals. Establishing a solid set of criteria developed before opening a trading account helps traders select the best copy traders from among hundreds on a bulletin board.

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There are several trading social networks and they offer different features, many of which are not fully understood by a novice Forex trader. Some networks reward their traders not only for the profits they make but also for their low-risk management approach. This makes leading traders more risk-aware than those in other networks who reward traders only for their profits and can therefore attract more risk-taking. With this type of network, novice traders are encouraged to start trading with additional risk, which is not always a good start.

Furthermore, traders new to Forex trading may not understand the ramifications of the different social trading networks. For example, some social trading networks limit the amount a trader can allocate to 20 or 30% which is certainly beneficial as it forces the trader to spread his risk. On the other hand, a trader can be allowed to risk up to 100% on a single trade and technically he can lose everything in a single trade.

There are pros and cons to all investments and the same goes for copy Forex trading. The key to success in any business is knowledge; the more a trader understands how a financial instrument works, the less risk he will run and his chances of profit will increase considerably.

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Forex Copy Trading: The Good And The Bad