Last year, several top Forex brokers introduced the concept of social trading on Forex. The idea is simple: the best Forex traders share their trades with the community, and other traders are free to copy their trading strategies. This is a new idea that allows novice Forex traders to learn from Forex experts.
Many of the best social Forex brokers allow you to search for traders to copy based on profit, risk level and the number of other traders who copy the Forex trading expert. This makes it easy to find popular Forex traders to copy, but there are a few things you should consider when copying a Forex trader.
- Popular doesn’t always mean best. Most brokers allow you to see how many people are copying a Forex expert. However, the number of copiers alone does not necessarily indicate a strong trader. Many times, users flock to a trader after he makes one big profit trade, hoping to score again. A trader may have thousands of followers, but that doesn’t mean the followers are making money.
- Don’t copy a Forex trader just because of the high profitability. Just like a trader’s popularity, a Forex trader’s results can be misleading if not read properly. One of the most popular Forex brokers has dozens of traders whose statistics reflect 300% profit from Forex trading. That’s a surprising number, but you have to consider the number of trades and the amount of capital you’re risking for those profits. If you don’t have a large trading account, you may not be able to survive the drawdowns that occur on the way to those big Forex profits.
- Check the risk profile. Most of the leading social Forex brokers offer some measure of trader risk. While many high-risk Forex traders manage to make big profits, the strategies used may not work for all traders. Beginner Forex traders, in particular, should copy lower risk traders so that one trade does not put their entire account at risk.
- Diversify! Don’t risk your entire Forex trading account copying one trader. Instead, choose a few different traders and split your money between them. This will reduce the overall risk, as only part of your account will be at risk when a trader makes a risky trade. Yes, you may miss out on a great trading opportunity from time to time, but the goal is to make a steady profit in Forex.
If you keep these ideas in mind, you will have a much better chance of successfully copying other Forex traders. Social forex trading programs are a great way to start trading forex while reducing risk while new traders learn the forex market. However, risk still exists and traders should be wise in their decisions when choosing traders to copy.