In forex trading, many friends do not have enough time to trade, but sometimes they do not want to miss out on the market. Therefore, they choose a relatively simple and convenient way to trade, which is copy trading.
What exactly is copy trading in forex? Let's find out today.
1. What is Copy Trading?
In simple terms, it is the process of automatically trading by copying another trader's orders.
The Principle of Copy Trading:
One is the order allocation principle, and the other is the order copying principle.
1) Order Allocation Principle (First Executed, Then Allocated):
The main account first executes the order, then allocates the executed orders to each sub-account according to the corresponding allocation rules. Common models include PAMM.
2) Order Copying Principle:
Which is essentially "copy" and "paste" the orders. Using copy trading software or API interfaces, orders are identified in the signal source account, then "copied" and "pasted" into the copy trading account to complete the operation.
The logic is: if the signal source account places an order, the signal account automatically sends the order information to the copy trading software. After receiving the signal order information, the copy trading software processes it according to the customer set copy trading strategy and sends it to the copy trading account again; for example, okcopy trading.
Signal Source Account Quote Acceptance Diagram:
From the diagram above, we can see the complete quote acceptance structure;
The signal source account may be on the MT4 server of Retail Forex Broker A or on the MT4 client of A.
The copy trading software identifies whether the signal source account has placed an order, and if an order is placed, the copy trading account will execute it.
Copy Trading Account Execution Structure Diagram:
The execution order is carried out through the MT4 client of Retail Forex Broker B, executed through the structure above at either the retail forex broker (market maker), liquidity provider LP2 (exchange), or quoting bank.
If A and B are the same forex broker, then it is same-platform copy trading;
If A and B are different forex brokers, then it is cross-platform copy trading.
Points to Note:
1) The price source of the signal source and the price source of the copy trading account often do not match, as the copy trading software only identifies and executes the order.
2) Under the "copy" and "paste" principle, there is often a delay between the signal source order and the copy trading order;
3) The MT4/5 software itself quotes at a frequency of 4 times/second;
4) Using a cross-platform API interface copy trading system will be affected by Meta Company system upgrades.
Types of Copy Trading in Forex?
Types of copy trading in forex can be divided into same-platform copy trading and cross-platform copy trading.
A—Same-platform Copy Trading:
PAMM (Percentage Allocation Management Module), MAM (Multi-Account Management), web-based copy trading
1) PAMM (Percentage Allocation Management Module)
This belongs to the order allocation model, where funds are pooled together and operated by the account manager, with only one account.
After the account profits, the manager and investors will distribute the profits according to a percentage; it can perfectly solve potential risks such as untimely profit distribution between investors and managers.
Brokers offering PAMM are usually more transparent and compliant.
2) MAM (Multi-Account Management)
Based on the bridge or order copying model of the MT4 client; one main account places orders, and other copy trading accounts follow, belonging to one-to-many where one main account can be followed by multiple accounts; account managers can trade for multiple investors quickly, effectively, and accurately through a single trading account.
The total trading volume and lots can be set, and investors only need to enter the total trading lots. The system will automatically allocate the lots to different individual investors according to the allocation method chosen by the investor.
The MAM system usually improves the trading efficiency and profitability of asset managers and makes it easier for investors to participate in asset management plans.
3) Web-based Copy Trading
These are internal copy trading services launched by each platform. Traders can follow signals directly on their platform's copy trading webpage, and all orders directly copy the trading signals of the main account through the server or VPS, then automatically execute the trades.
For example, BlackBull, Etoro, Darwinex... all provide this service.
Advantages and Disadvantages of Web-based Copy Trading
1) Being on the same platform, it is simpler and more convenient to operate.
2) Low network latency, with faster trading signals and execution speed;
Disadvantages:
1) There may be restrictions on lot sizes and trading strategies;
2) There may be fewer trading signals in web-based copy trading;
3) When a large number of clients follow one account, liquidity issues may arise;
4) In some cases, the platform may actively intervene in trading, intentionally causing slippage.
B—Cross-platform Copy Trading
Cross-platform copy trading usually requires clients to use third-party tools to achieve it. The principle is the same as that of same-platform copy trading, but the difference is that the copy trading community offers traders different broker platforms and signals. Traders can choose to follow independently.
For example, commonly seen in China are: OKCOPY, KlipC, Followme, myfxbook...
OKCOPY
It is a global technology service innovation platform that provides intelligent technological solutions to individual traders and institutional traders worldwide. It is committed to driving technology upgrades as the core driving force, constantly innovating technology services, and creating a global forex ecosystem industry chain that integrates traders, asset management companies, agents, and investors.
It achieves seamless cross-platform integration using API technology interfaces, allowing one-to-many and many-to-one copying. It also supports mutual copy trading between MT4/5, has a robust risk control system, simple setup, fast copy trading speed, and very flexible and convenient usage.
(OKCOPY website screenshot)
For individual traders, one great feature is that personal users can use it for free permanently.
KlipC
Commonly referred to as K Station, it is also a relatively active copy trading community in China. According to its official website data, users have exceeded 100,000.
(KlipC website screenshot)
Individuals can register directly on its official website and follow recognized trading signals. According to its official website's prompt, if there is a margin call, the following month's copy trading fee will be fully refunded.
Followme
It is a community for traders to communicate, where many forex market experts, trading masters, retail traders, and platform brokers will exchange ideas. There are also plenty of trading signals for traders to subscribe to and follow.
(Followme website content page, without any guidance)
These copy trading communities offer numerous trading signals for followers to choose from, but generally require a subscription fee.
However, some communities may also have fake live accounts provided by gambling platforms, so caution is necessary.
Advantages of Cross-platform Copy Trading:
Supports cross-platform, simple, flexible. There are many signals to subscribe to, suitable for retail customers.
Disadvantages:
1) Sometimes delays can be significant;
2) Because each platform's leverage and contracts are different, order lots may differ;
3) Different liquidity and costs among platforms may result in different profit and loss outcomes;
4) There may be occurrences of missing or dropped orders.
C—Local Copy Trading
Compared to web-based copy trading, there is also local copy trading. Local copy trading runs locally, and after installing the corresponding software, you can start operating.
(OKCOPY local copy trading software screenshot)
Its advantages are:
The software runs locally, so it responds quickly. Account data is stored on the local server, making it more secure than web-based copy trading. It can connect to multiple platforms, supports mutual copy trading between MT4/5, and has fewer instances of missing or dropped orders.
Its disadvantages are:
Installation and maintenance are troublesome, requiring a higher level of technical expertise from users; it can only be used on devices where the system is installed, and if it needs to be used on other devices, it requires separate installation and purchasing authorization.
Final Summary:
1) If you are an individual retail customer and need more options to follow good trading signals, you can choose OKCOPY, Klipc, Followme, myfxbook, or the platform's own copy trading software.
2) If you are an asset management team, you can use MAM or PAMM to assist;
3) Due to liquidity issues, both cross-platform and same-platform copy trading experience slippage. The more copy trading accounts there are, the greater the slippage;
4) Due to latency issues, there may be cases where the signal source makes a profit, but the copy trading account incurs a loss.
5) No matter what kind of copy trading method, it is not suitable for large capital management;
Copy trading software is just a tool. To truly avoid order drops, ensure good management, and have no delays, the only industry answer is to recommend centralizing funds into one managed account.
Large capital accounts need secure and reliable brokers and fund custody solutions. LMAX has multiple solutions for this segment of high-net-worth clients, feel free to reach out and discuss~
Laoda WeChat: TraderLaoa
That's all for today's sharing, I hope it was helpful to you.
