With the rising popularity and reputation of the financial markets, many wishes to trade like master and expert traders, harnessing their expertise and propelling their earnings to new heights. With mirror trading, their dream will come true as this approach offers every investor the power to mirror the moves of seasoned and expert traders, potentially enabling them to reap the rewards of their success!
This article will delve into mirror trading, where reflection is critical to unlocking financial aspirations. So, what is precisely mirror trading? How does it work? What unique advantages does it bring to the table for traders and investors? Keep scrolling as we reveal the answers to these questions and more.
Table of Contents
What Is Mirror Trading?
As its name suggests, Mirror trading offers investors to mirror and replicate the trades made by expert traders.
In fact, mirror trading empowers every investor, especially those with limited knowledge, to utilize an expert’s or seasoned trader’s strategy, including their entry and exit points, position sizing, and risk management strategies, to make a profit.
Mirror trading is done through platforms that provide investors access to a diverse range of traders, allowing them to evaluate and assess their trading strategies and performance.
Once an investor opts for a trader, the mirror trading platform will execute a trade.
When considering mirror trading, learning how it works and shapes beginners’ and pro traders’ trading journeys is crucial!
Keep reading to find the answer!
How Does Mirror Trading Work?
Mirror trading allows investors who are copiers or beginners to link their accounts to an experienced trader and mirror their positions entirely. An Expert Advisor (EA) can also do this process based on algorithms on their behalf.
- Technically speaking, an investor must first opt for a mirror trading platform that bridges the investors to well-performing traders.
- As the trader executes a trade, a mirror trading platform instinctively replicates the trades, eliminating the need for human intervention.
- If an investor opts for an Expert Advisor, the EA will make the trade on their behalf.
Mirror Trading for Pro Traders
Contrary to popular belief, mirror trading is not just for beginner investors; pro traders can benefit from it and perk up their trading styles.
- Additional income: Copied traders can earn additional income by allowing other traders to copy their trades. They receive a portion of the profits generated by the copiers, which can be a lucrative source of income.
- Reputation and recognition: Successful copied traders can gain a reputation and recognition within the trading community. This can lead to opportunities for collaboration, ship mentoring, or even attracting investors for their trading strategies.
- Increased trading volume: When traders copy your trades, it can significantly increase the trading volume of your assets. Potentially this can lead to better liquidity and improved execution of your trades.
- Validation of trading strategies: If other traders are copying your trades, it can validate that your trading strategies are effective. This can boost your confidence and reinforce your belief in your trading approach.
- Pressure. to perform: Copied traders may feel the pressure to consistently perform well and generate profits for their copiers. This can lead to stress and potentially affect their decision-making process.
- Lack of privacy: When your trades are copied, your trading activities become visible to others. Some traders prefer to keep their strategies and positions private, and mirror trading may not suit them.
- Potential for replication errors: There is a risk that copiers may not execute the trades exactly as intended by the copied trader. This can result in replication, and errors potentially impact the overall performance of the trader copied.
Mirror Trading for Beginners
Financial markets suffer from volatility, and as a novice trader, trading in financial markets can be scary for several reasons, including a lack of knowledge, risk of losing money, market predictability, emotional factors, etc.
- Mirror trading streamlines the learning procedure as traders can follow and learn various types of trading strategies.
- Trading involves understanding complex financial concepts, which could be challenging and time-consuming for traders. With mirror trading, beginner traders can save time and let the platform automate their trades.
- In a game-changing world of financial markets like the forex market, stock market, and cryptocurrency industry, it’s vital to maintain a rational mindset, free from the sway of emotions. Mirror trading eliminates the emotions from investors’ decision-making. It will take care of everything that relies on an experienced trader’s success and also can trade on investors’ behalf based on algorithmic logic.
- Successful trading doesn’t happen overnight and demands practice, time, effort, and consistency. However, mirror trading can be time-efficient for investors as it automates the trading process, eliminating the need for extensive practice and experience.
There are also some drawbacks, explained as follows:
- In the dynamic and volatile world of trade and investment, failure is an inevitable part of the process. Meaning that even professional and expert traders can do wrong and experience periods of downturn and setbacks. As a result, along with profitable and successful trades, wrong and failed trades also get mirrored for investors.
- Costs: Some mirror trading platforms charge fees for copying trades or accessing certain features. These costs can eat into the profits of copiers and should be considered when evaluating the potential benefits of mirror trading.
- Trading with mirror trading is like driving on autopilot. It operates without human input, and investors do not control what is being executed, including opening, closing, and managing positions.
Mirror Trading in Forex Explained
As mentioned above, you must choose a mirror trading platform to connect your account to a pro or master trader’s account and automatically execute your trades. The followings are the top five best forex mirror trading platforms.
Top Five Best Forex Mirror Trading Platforms
- AVA Trade
- Hot Forex
- Fp Markets
What Is Crypto Mirror Trading?
The procedure of mirror trading in the crypto market is similar to the forex market. However, trades need to choose a mirror trading platform that supports cryptocurrencies.
The followings are the top five best crypto mirror trading platforms.
Top Five Best Crypto Mirror Trading Platforms
Mirror Trading VS Copy Trading
Although mirror trading and copy trading rely on other traders’ strategies, especially those experienced in trading, to identify trading opportunities and execute trades, they also have some key differences.
Technically speaking, mirror trading is considered an automatic trading strategy and also can be generated based on algorithms. In other words, a mirror trading platform links investors to traders and replicates the trading process in real time without human intervention. This process includes traders’ entry and exit points, what kinds of orders are used, such as take profit or stop loss orders, the position size, their risk management strategies, etc.
Once the trader executes their trade, all these procedures will be accrued on the investor’s account simultaneously.
On the other side of the scale, in copy trading, investors can see other pro or master traders’ transactions, and it leaves some of the decisions to the investors, meaning they have a right to make some adjustments and choose or select the trades that align with their risk management or strategy.
Mirror Trading VS Social Trading
Before cutting to the chase, first, we need to know what social trading is. Social trading refers to sharing ideas, insights, and information found by other trades on different social platforms.
In contrast to mirror trading, where everything is automated through the platform, social trading allows traders to actively interact with others, follow their trade opinions, and learn about their-making decision processes and strategies without necessarily copying their portfolios.
Is Mirror Trading Legal?
Mirror trading could be considered legal since no specific regulations or restrictions prohibit it. It is also regulated by many of the world’s financial authorities, including the FCA, SEC, and ASIC. It is important to note that the legality of mirror trading may vary from country to country. Therefore, it is advisable to thoroughly research and understand the rules and regulations applicable in your specific jurisdiction before taking any action.
However, it is important to note that mirror trading can be associated with several fraudulent activities and manipulative behavior. One example of a significant mirror trading fraud is outlined below.
Fraud in Mirror Trading
One of the mirror trading frauds took place in 2017, in which Deutsche Bank faced significant fines of $425 million by the New York Department of Financial Services and £163 million by the Financial Conduct Authority (British regulators) due to their involvement in “mirror trading.”
Active participants engaged in a money laundering scheme, wherein they purchased Russian stocks through Deutsche Bank in Moscow using rubles and sold them Deutsche to Bank in London for US dollars. This operation created a channel for money laundering that persisted over several years.
By and large, these fraudulent activities can occur in various financial practices, like mirror trading. Mirro trading, itself, is a legitimate activity that refers to the replication of trades from selected traders or trading systems.
How Can Investors Manage the Risks of Mirror Trading
Risk is a factor every individual always needs to consider. In order to manage the risks involved with mirror trading, we’ll go through many risk management strategies as follows.
- Conduct Some Research: It’s essential to conduct comprehensive research and analysis before implementing any trading strategy. Investors should meticulously evaluate the recent performance of their chosen traders.
- Diversify Signal Providers: Never put all your eggs in one basket! In other words, investors must not follow just one trader and not rely on a single trader’s performance. They should choose multiple traders in order to reduce losses and failures.
- Monitor Performance and Adapt: Another crucial factor is that investors need to keep track of their trader’s practice and make adjustments if needed.
Mirror Trading Overview Infographic
All in all, mirror trading is an algorithmic method that offers investors to set up their accounts and duplicate the trades executed by an experienced and successful trader.
While mirror trading can be time-efficient and serve as an educational tool, it does not guarantee profits. Traders must actively manage the risks associated with mirror trading. This involves conducting independent research, selecting reliable transparent and signal providers, diversifying signals sources, monitoring trade performance, and staying updated on trading principles, risk techniques management, market, and dynamics.
Are there any risks involved in mirror trading?
No journey is without its bumps in the road! Mirror trading, despite its benefits, also carries certain risks that traders should be aware of. Investors who follow mirror trading strategies cannot control the procedure; even the most successful traders can go wrong.
How do I choose the traders to mirror?
To choose reliable traders to mirror any traders, first, as an investor, you need to evaluate different expert traders’ performance, analyze and assess the trades they sent, and have a record of their activities to ensure their transparency.
Is mirror trading a reliable investment strategy?
Financial markets evolve rapidly, and market trends, investor behavior, politics, and other events can drive the performance of each investment strategy. Therefore, no investor can only rely on a mirror trading strategy, and they require to evaluate the risks carefully and regularly review and adapt their approaches based on changing market conditions and sentiments.
Can I customize the trades I mirror?
Customizing your trades highly depends on the mirror trading platform you are using. Traders can actively adjust and customize their trades on platforms that are designed with multiple options.
Are there any regulations for mirror trading?
Yes, some financial authorities have regulated it, including Financial Conduct Authority (FCA) in the UK, the Securities and Exchange Commission (SEC) in the United States, and the Australian Securities and Investments Commission (ASIC) in Australia.