If you are a newbie trader in the UK, you can improve your trading knowledge by copying the trades of established traders. This article will guide you through how to copy traders in the UK using the best copy trading apps. We will also look at the copy trading fees, available assets to copy-trade and several factors to consider before considering copy trading.
Summary
Copy trading is a form of social trading that allows investors to automatically replicate the trades and strategies of professional traders. New traders can use specialized platforms to connect with and copy the trades of experienced investors, potentially benefiting from their expertise and aiming to achieve similar financial results.
This form of trading can also have its potential downsides, as newbie traders can be exposed to the potential losses that could be made by traders they copy. When traders they copy suffer a heavy loss, they could lose most or all of their trading capital.
Copy trading is made possible by the use of copy trading apps. Apps like Pepperstone and eToro offer copy trading services that allow not only to automatically copy the trades of other traders but also monitor those trades so that they can learn the trading styles of these traders. This guide article will show you how to copy traders in the UK, listing the pros and cons of copy trading, factors to consider before copying traders in the UK, and the different trading fees you might incur.
Copy Trading in the UK
It is difficult to pinpoint the exact origins of copy trading around the world, since traders have been replicating the trades of more successful investors for decades before the internet.
However, the late 90s came with online chat rooms and forums that provided new avenues for sharing trading ideas and signals. In 2007, ZuluTrade was founded in the UK and gained traction as a copy trading platform. While it was not UK-based, it specifically targeted UK investors through its platform and marketing.
Zulutrade focused on creating an online community of traders where users could share strategies and copy the trades of successful signal providers in real time. This approach was important in paving the way for other modern copy trading platforms like eToro and Pepperstone, which operate in the UK today.
With the increasing popularity of copy trading came the need for regulations. Starting in 2007, the FCA has set guidelines for platforms offering copy trading to traders in the UK. Some of these guidelines require copy trading platforms to have good risk management systems for traders whose funds are at risk by trading on the platform. The FCA also requires platforms to clearly state the risk involved in selling to the investors on the platform.
Although it is not perfect, copy trading in the UK has evolved to become safer and more open to traders looking to build their expertise through this method of trading.
How to Copy Traders in the UK
If you wish to copy traders in the UK, here are a few steps to follow:
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Select a UK Social Trading Platform
Pick a regulated and reputable platform that offers a user-friendly interface, diverse asset classes, and a good reputation for customer support. Some platforms worth considering include Pepperstone and eToro.
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Research and Select Top Traders on the UK Social Platform
Research every platform you choose by going through their trader’s directory and analyse their performance metrics, risk profiles, trading strategies, and historical track records. This helps trim down your options further and provides you with an understanding of whether a platform works or not.
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Review the Top Traders’ Profile and Portfolios
Do a deep research into the personal profiles of selected traders, understanding their trading experience, risk tolerance, and market expertise. By analysing a trader in-depth, you reduce the chances of choosing a risky trader to copy. Spend as much time as possible on this point to determine if a trader is a good choice for you.
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Start Copying Trades
Set up a portion of your investment capital to copy the trades of chosen signal providers. Set up an initial investment amount and customise your copy settings to match your risk appetite and preferences.
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Monitor your Trading Positions
Keep an eye on your copied trades, monitor movements in the market and regularly evaluate the performance of your signal providers. Adjust and readjust your copy settings or reallocate funds as needed to adapt to changing market conditions.
Pros and Cons of Copying Traders in the UK
Some of the benefits and downsides of copying traders in the UK include:
Pros
- Learning opportunity for new traders.
- Leverage the proven track records of skilled traders.
- Easy access to the expertise and strategies of experienced traders.
- Allows for diversification across different assets and classes.
- Saves time.
Cons
- Blind trust in the chosen trader’s skills are required.
- Liable to market risks that affect experienced traders.
- Platforms and signal providers may charge significant fees.
Factors to Consider Before Copying Traders in the UK
Before you start copying traders in the UK, you need to consider some important factors. These factors can make or break your trading experience, and are:
Trading Strategy
Look at the trading strategies used by the trader you wish to copy. Dive deep into this strategy to determine if it is a good one for you. Is the trader you wish to copy a day trader who relies on short-term swings, or are they a long-term investor. Do they use volatile options or low-risk bonds?
Check to see if their trading strategy aligns with your investment goals and risk tolerance. This is key to keeping a clear head and the right mental state when copy trading.
Risk Management
Before you copy traders in the UK, do a quick analysis on how they reduce potential risks. Do they use stop-loss orders to reduce the downsides on trades? How well do they diversify their trading capital across different asset classes to spread risk.
Ensure you choose a trader who can manage risks properly as this gives you confidence in their ability to navigate market turbulence.
Performance/Returns
It is true that past performance may not be the best indicator of future results, but they can be a good indicator of a trader’s abilities. Check the trader’s historical performances during different market situations, including bull runs and bear markets. Check if their performance and returns have been consistent and that they have not relied solely on luck to get good returns during bull runs.
Drawdown
A drawdown is a measurement of the decline in value of an investment or trading account from its peak to its lowest point before recovering to a new high. Traders use this metric to determine how risky an investment or trading account is. It is measured in percentages.
If you are looking to copy a trader in the UK, look at their maximum drawdown, which is the largest difference between a peak and trough in their trading history. Also, check their average drawdown and the maximum drawdown across different time periods (days, weeks, months, years, etc.).
Check if you’re comfortable with the frequency of potential declines. Also check how well they handle these losses and how fast they adapt and bounce back. A detailed research on a trader’s drawdown is sufficient to provide you with a lot of information about a trader and their strategy.
Years of Experience
Experience may not be the sole determinant of a trader’s skill, but it is still highly important. An experienced trader has most likely been through different trading cycles and used the experience to strengthen their strategy.
Look for traders with at least a few years of a consistent trading track record under their belt. Also, check to see the overall average years of experience for traders on a platform before you start trading with them.
Minimum Deposit
Some platforms set required minimum deposits to copy traders in the UK. Analyse if this aligns with your budget and overall investment strategy. Don’t be pressured into exceeding your budget to cash in on a “juicy trading opportunity”.
It is important to note that none of these considerations can guarantee a risk-free copy trading experience. Carefully analyse these factors to find a UK trader whose style, risk management, and experience align with your financial goals and risk tolerance.
Trading Instruments you can Copy-Trade from Traders in the UK
There are many trading instruments you can trade with when copying traders in the UK. These different instruments have their benefits and downsides, and the choice between one or the other depends on the investor’s preference and trading goals.
Here are some trading instruments to consider:
Forex
Short for “foreign exchange,” forex refers to trading currencies against each other. The forex market is the world’s biggest market, with traders exchanging more than $6 trillion worth of forex everyday. Investors speculate on which currencies will rise and fall based on different facts like the economics and politics around that currency.
Forex copy trading might be a good option for you if you are interested in potential high returns and trading 24/7 during the week. However, the potential for high reward also comes with high risk, so you could lose a significant amount of money if not managed properly.
Stocks
Stocks are shares in a company, which give investors a partial ownership of the company. When you own stocks in a company, you are eligible to receive potential profits from dividends and stock price appreciation. The stock market is also one of the most traded markets in the world, with investors speculating on potential price changes of different stocks. They can do this by trading stocks directly, or using Contracts for Difference (CFDs), which allow them to speculate on stock price movements without owning the actual shares.
Copy trading stocks may be a good option for you if you are interested in potential long-term capital gains and dividends. However, this means you are open to company-specific risks and market downturns that could cause you to lose your trading capital.
Indices
Indices are baskets of assets that monitor the performance of a particular market or sector. For example, the FTSE 100 tracks the performance of the top 100 companies listed on the London Stock Exchange. Indices are often desired by traders who wish to diversify their assets across multiple companies.
The main benefit of trading indices is that it limits risk to the trader and copy trader involved. On the other hand, it limits your control as you cannot choose specific stocks within an index to trade.
Commodities
Commodity trading involves trading physical commodities like oil, gold, and agricultural products. This method of trading is great for hedging against inflation and diversification of trading portfolio. On the other hand, price volatility could be an issue that causes the trader and copy trader to lose trading capital.
Cryptocurrencies
Cryptocurrencies, often referred to as “crypto”, are digital currencies that are based on blockchain technology. People often buy cryptocurrencies as a form of digital currencies to buy goods and pay for services. Some investors speculate on the price of different cryptocurrencies to try to take advantage of the rapidly changing prices.
When you copy-trade cryptocurrencies, you have access to a 24/7 decentralised market with good potential returns. However, the price volatility of cryptocurrencies could severely affect your trading strategy and cost you trading capital.
Copy Trading Fees in the UK
It is important to understand the various copy trading fees in order to avoid unpleasant surprises. In the UK, there are several types of fees that can impact your copy trading experience. They include:
Broker Fees: These are fees charged by the brokers for transacting on their platform. They aren’t specifically copy trading fees.
- Spread: A spread is the difference between the bid and ask price of an asset. Brokers try to offer tighter spreads to clients.
- Commissions: Some brokers charge a commission per trade, especially for less liquid assets like stocks. Brokers like eToro do not charge commissions on trades.
- Account Maintenance fees: Some brokers charge monthly or annual maintenance fees on copy trading accounts.
Platform Fees: These are fees you are likely to pay specifically for copy trading. They include:
- Subscription fee: Some platforms charge an annual or monthly subscription fee for using their copy trading platform. Brokers like ZuluTrade offer paid memberships for people interested in copy trading.
- Management fees: Some platforms charge a percentage of your assets under management (AUM) as a fee for copying investors. Platforms like eToro don’t have any management fees or other hidden costs.
Provider Fees: These are fees charged by the copy trader whose trades you mimic
- Signal fee: Some successful signal providers with proven track records will charge you for access to their trade signal. This fee could be a one-time fee, or a monthly or annual fee.
Additional Fees: These are others fees you might incur on a copy trading platform and they include:
- Inactivity Fees: Some brokers charge you for inactivity if you don’t trade on the platform for a long time period.
- Withdrawal fees: A broker may charge you a small fee for withdrawing funds from your copy trading account.
Is Copy Trading Legal in the UK?
Yes. Copy trading is legal in the UK under the regulatory purview of the Financial Conduct Authority (FCA). Every broker or platform offering copy trading in the UK must be authorised by the FCA. All platforms offering copy trading must provide adequate risk warnings and disclosures to potential users, as well as implementing appropriate investor protection measures, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.
It is important to note that not all copy trading platforms and brokers are authorised by the FCA, so traders should do their research and choose an approved platform to minimise risks. Also, traders should note that while brokers are regulated by the FCA, copy trading still involves a lot of inherent risks like market volatility, provider performance fluctuations, and platform technical issues. These risks could cost you your trading capital if not well managed.
What Reddit and Quora Users Say About Copying Traders in the UK
Before you start copy trading in the UK, it is important to find out what other copy traders have said about the practice. We went to two of the biggest social platforms, Reddit and Quora, to see what people had to say about how to copy traders in the UK.
Reddit, the front page of the internet, is one of the largest social platforms available with hundreds of millions of users. We went through this platform to see what people thought about copy trading in the UK.
On the subreddit r/UKInvesting, there was a question from a Redditor who wanted to know more about copy trading and the risks involved. According to them, they were looking to copy trades from professionals in TD Ameritrade, Gemini and others.
Another Redditor advised the Original Poster (OP) to be wary of copy trading as most “professionals” don’t beat the market regularly like they would have you believe.
Quora
Just like Reddit, Quora is a social platform with hundreds of millions of users who discuss a wide range of topics. We went through some questions and answers to see what people thought about how to copy traders in the UK.
On the first Quora forum we saw, a user was asking for opinions about the favourite trading platforms of other users on the platform. Some users chipped in to provide some interesting answers.
One Quora user responded that one of the best copy trading platforms was RoboForex. According to this user, the platform was created to make copy trading easier for novice and experienced traders. The platform allows traders to select their own signal providers, based on their trading strategies and risk tolerance.
Bottom Line
Copy trading is a form of trading that allows traders to replicate the trades of other more experienced traders. This way, they are open to potential benefits of successful trades and a useful learning experience if they select the right traders. Copy trading can also expose you to losses if you choose the wrong traders to copy.
This guide article went through everything you need to know on how to copy traders in the UK. We discussed various steps to follow, the factors to consider before selecting traders to copy, the trading instruments to trade with, copy trading fees you will likely incur, and the legality of copy trading in the UK.
Copy trading can be a worthwhile learning experience for you if you pick the right trader and use the right strategies yourself, and not just follow experienced traders blindly. This guide article explains how to follow this process in detail.