Have you been interested in copy trading or social trading lately? You want to know more, but you don't know where to start. Here is our guide!
First of all, you must know that the first innovative investment practice to appear on the markets was mirror trading.
Today we can safely say that mirror trading gave life to this innovative sector, from which other solutions such as copy and social trading were born.
In this guide you will discover:
- What is mirror trading?
- What are its characteristics
- Advantages and disadvantages of mirror trading
- What is the best platform for mirror trading
What is mirror trading?
Mirror… Social… Copy…
Different names in fact, to always say one thing. To be precise, however, it must be said that mirror trading in particular has key characteristics that distinguish it from the other two solutions, quite specifically.
With mirror trading, an innovative method to invest money, traders can:
- choose different strategies to be put into practice automatically, through the servers that host the platform to perform mirror trading;
- connect one or more different strategies to your trading account;
- copy in your account, proportionally to your investment and automatically, all the trading signals to follow the strategies and obtain the same performances.
Put simply, every time a trade is opened, closed or modified, according to a very specific strategy, the same is done by the investor on the personal trading mirror account.
Distinctive features of mirror trading
In mirror trading, a trading signal provider has uploaded its automatic strategy to one of the many mirror trading platforms available, which could also offer general trading and more.
Then, the strategy is examined, tested and only then made available to all operators. In a nutshell, it replicates what normal software (programmed by an experienced trader) does, which runs on a server platform for online trading.
Instead, with copy trading, the trader connects his account to the trading platform or app, and the platform records everything that is done by the trader, in order to produce data based on his performance, which other investors can see.
So, in this case, what a trader does and his trades are replicated. However, in essence, the difference is reduced to a minimum, since nothing prohibits the financial operator from using a so-called "algorithm-based strategy" on his account and therefore in that case, a situation virtually identical to the mirror trading proposal would be proposed .
How is social trading positioned?
It doesn't matter if you use mirror or copy trading platforms, if you add extra features of social networks, which offer the possibility for traders to communicate with each other, we are dealing with social trading platforms.
Advantages and disadvantages of mirror trading
Mirror trading, like other forms of investment, also has advantages and disadvantages, risks and opportunities.
The main advantages are:
One of the greatest advantages offered by mirror trading is that unlike what happens with other traditional forms of investment such as forex trading, bitcoin trading, cfd trading and commodity trading, with mirror trading your capital is not sold to third parties. Therefore, it is not necessary to hand over your funds to a provider.
To start investing, you need to open a trading account by entering your personal information and then paying a trading capital, which however will always be managed and controlled by the operator, rather than being managed by another entity.
Reduction of the emotional impact
Beginners who approach the world of trading, with the exception of automatic trading, find it difficult to control their emotions. It is very stressful to invest in the financial markets and this can have a huge emotional impact on people.
Mirror trading, unlike cryptocurrency trading for example, partially eliminates this problem, because it is not the operator who decides how and when to open or close a position, but the chosen strategy.
Wide range of tools and markets
In the beginning it was only possible to mirror trading on the forex market. However, over time, day trading platforms have also evolved and their offering expanded. Today you can also find mirror trading services for CFDs, futures, stocks and options.
Proportional replication of signals
One of the main advantages offered by mirror trading is certainly the proportionality of the signal replication. Put simply, if the strategy works on a € 100 account, but we only have € 10, it is clear that the trades cannot be the same size.
With mirror trading, on the other hand, we have various options available to replicate the strategies, fixed or proportional, both created to allow traders to replicate trading signals with the appropriate amount, according to the size of their capital.
Ability to check performance in advance
In the forex world, automated trading apps or so-called EAs are very popular. These are software that know how to trade automatically, which are installed directly on the trading platform.
The main problem with these solutions is that it is never possible to know their effectiveness in advance. With mirror trading, on the other hand, even if there is no certainty of a future return (unfortunately we will never have it, anywhere and anyway), at least you have a vision of the real performance of the strategy recorded up to that moment.
Ability to manage risk
Investing with Mirror Trading means having total control of your capital and therefore also the ability to manage risk according to your needs.
The main disadvantages are:
Slowness in adapting automatic strategies
Markets change direction often and very quickly. Automatic strategies are usually not that responsive and fail to adapt to such changes. For this reason, in most cases they are able to generate good profits, only under specific market conditions.
Assessing the risk is not that simple
Evaluating the performance and effectiveness of a strategy is not easy. Understanding if we are making a profit or a loss is simple, it is less so to understand how the profit is generated. In other words, to generate a profit you need to take some risk. Many traders, especially novice ones, often find it difficult to truly identify what the risks are and what they entail.
Complicated portfolio and money management
After evaluating performance and risks, the next step is to translate these evaluations into decisions. In practice, based on our objectives and the risks we are willing to take, we must learn to transform these choices into operational decisions and create a diversified portfolio to achieve our objectives with the least possible risk and in the shortest time.
The best platform for mirror trading
Today the platforms for mirroring, social and copy trading are very similar to each other, because the concept is always the same: to offer the trader the possibility to choose who will trade on his own.
By the way, the best platform for mirror trading and probably the most popular in Italy is without a doubt eToro. As mentioned above, this operator was a real pioneer in this field.
Furthermore, eToro is one of the few online platforms operating in Italy to offer an original mirror trading service, recognized worldwide as the best in terms of quality. Its trading library is very extensive, thus offering traders a wide choice.
How to learn to do mirror trading
As mentioned earlier in this article, the concepts behind mirror trading and copy trading are very similar. In some cases, practically identical.
Online it is possible to consult a tide of guides to better understand how to do copy or social trading. Consulting an online trading course, free or paid, can be an excellent starting point for any investor, especially novice.
Furthermore, we advise all those who approach this world to start investing their capital only after having practiced properly and for an adequate time. eToro for example, offers the possibility of trading in demo, thus using virtual funds.
For any other clarification, suggestion or further information, you can write to us in the comments below and we will reply as soon as possible. In the meantime, we wish you good trading!