During the COVID-19 pandemic, retail investors changed the way they traded stocks. Many followed the crowd, mimicking the moves of others-a behavior known as herd mentality. And that’s exactly where copy trading comes in!

How does copy trading work?

Copy trading allows traders-whether beginners or experienced-to replicate the trades of successful traders. The idea is simple: if they profit, you profit. But, like all trading strategies, copy trading comes with its own set of advantages and disadvantages.

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Advantages and disadvantages of copy trading

To make things easier, here’s a quick breakdown:

Pros	Cons
Learning Opportunity - Beginners can watch and learn from seasoned traders.	Risk of Loss - If the trader you copy makes a bad move, you could lose money.
Portfolio Diversification - Copying multiple traders spreads risk across assets and strategies.	External Dependencies - Relying on others can slow your development of independent trading skills.
Convenience - Trades are executed automatically, saving you time.	Volume Fees - Some strategy providers charge performance and management fees, which may impact your overall returns.
Passive Income Potential - Strategy providers earn commissions when people copy them.	Market Volatility - Unpredictable market movements can impact even the best traders.

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Things to consider before copy trading

If you’re thinking about copy trading, it’s essential to consider your risk tolerance, investment goals, and trading knowledge. Here are a few smart steps to take before diving in:

Research traders before copying them – Look at their past performance, risk management style, and trading strategies.
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Start small – Don’t go all in. Test the waters with a demo account first.
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Diversify – Copying multiple traders can help balance risks and potential rewards.
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Stay informed – Even if you’re copying, keeping an eye on market trends is always a good idea.

Want to try copy trading risk-free? Open a Deriv Trader demo account and practice with $10,000 in virtual funds!