Mirror trading refers to a method of trade selection that is typically seen in the forex markets. Investors use this strategy to mimic the trades of more seasoned and successful forex traders in real time. In the beginning, this was only available for institutional traders but this has changed now. There are many ways in which retail investors can also access mirror trading. In fact, ever since its inception around the 2000s, mirror trading has bolstered the growth of strategies like copy trading and social trading.
Understanding Mirror Trading
Mirror trading facilitates automated trading which helps in keeping emotions out of the picture during trading. Most mirror traders in the forex market will take the help of the trading company’s platform to assess the past and details of different trading strategies. These trading platform software is also very similar to MetaTrader 4 or MetaTrader 5.
As one researches performance elements, the trader opts for an algorithmic trading strategy from the different options that are there on the basis of investment goals, how much risk you can take, what is investment capital available, and the chosen assets you want to invest in. For instance, when a trader doesn’t have a significant risk tolerance capacity, they might want to mirror a trading strategy with a low maximum drawdown. When strategy developers carry out their trades, the trades are copied out to the tee in mirror traders’ accounts using an automated software that works for 24 hours from Monday to Friday. The idea behind this is to get similar results.
How does it work?
Contrary to traditional mirror trading, this one works smoothly. Several trading companies/agents would let you mirror your account performance. A seasoned trader will have the eye to know which asset and technique will fit you the best. They will also be able to mirror their trading positions to ensure that when their trade moves, so do yours.
Many authorities around the globe regulate mirror trading. It is a practice known as portfolio management that has been made necessary by numerous regulators.
Pros and cons of mirror trading
Pros of Mirror Trading
Control of your capital:
In mirror trading, you control your funds. This was one of the key aspects of mirror trading that is remarkably different from typical investment methods where you give away your funds to an assigned manager to handle. In order to invest, you have to open a trading account for yourself and add capital to it. However, you will be the one in charge of the capital and a third-party entity will be managing it, thereby ensuring better fund security.
Keeps Emotions at Bay:
Mirror trading is done by assessing data points on which a trade was created. This roots out any emotion that may hamper trading decisions. A top reason why several investors are unable to make progress in their trading careers is because of their inability to control emotions. When day trading, one should not be driven by greed and fear.
Time-saving and convenient:
Trading can be demanding and ask for a considerable amount of your time as well as effort. If you’re not carrying out proper analysis, you cannot trade successfully as the market keeps changing by the minute. Mirror trading rules out this factor and lets you emphasize on the details they’ve made progress in.
Proven results:
Trading platforms and companies that facilitate mirror trading allow very comprehensive testing of many strategies before amateur traders, and use them for mirror trading. All loss-making strategies are out of the picture while the ones that have shown results stay on the platform.
Cons of Mirror Trading
Wrong trades get mirrored:
Mirror trading software allows you to trade on your own rather than resorting to a master trader. But remember that it can also be risky and lead to poor decisions that may eventually cause loss. It is necessary to take into account the fact that not just profitable trades but also the potential trades that are about to touch stop loss levels will also be mimicked.
No active control:
Mirror trading essentially states that as a trader you are not in direct control of the execution. It could turn out to be a solid trust issue as one entirely depends on algorithms to fill their positions. This of course varies person to person. A few traders might not want codes to take charge of their trades while others might not see it as a problem.
Limited scope:
Typically, the platforms that allow mirror trading don’t give you the choice to trade on the underlying asset. Rather, you have to choose from contracts for difference (CFDs). A CFD is basically a contract where traders can make money by the changes in an asset’s value without actually taking ownership of the asset. Thus, there’s limited scope to explore various other instruments.
How To Start Mirror Trading?
Since you’re now familiar with the pros and cons of mirror trading, we will quickly run through the process using which you can assess what this trading style entails:
Pick an exchange:
The first step is to select a licensed exchange that allows mirror trading and register yourself with them.
Get access to the trading terminal:
In case your exchange allows for a third-party platform to carry out mirror trading, you would have to download and install it on your system. There are also some exchanges that allow this facility on the website that can be accessed with the help of a web browser.
Select a trading strategy:
There are many strategies you can pick. As a successful trader, you may be searching for an algorithm that is based on data trends. On the other hand, if you are an amateur trader who wants to learn how to trade without emotions, you should pick an algorithm accordingly. Yan learn more here Introducing broker Forex.
Protection against risk:
Don’t be in a hurry to start trading with real money. First, ensure that you have a sound understanding of the risks that are in place. Make sure you define your risks and stay within your means.
