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Risks to watch out for in copy trading

Erroneous parameters

If a Follower sets improper subscription parameters, neglecting the allowed leverage, it can cause a premature stop out.

Insufficient Diversification

The Follower copies several trades but their results are too correlated in the same direction and do not provide adequate diversification across different asset classes.

Lack of Proper Examination

Launching into copy trading without adequate study of the accompanying statistics and not following the methodology of banding different Traders into risk categories by the ForexCopy system could make risky signals look better than they really are and could lead the Follower to subscribe to Traders whose strategies are unsuitable for their risk and psychological profile.

Market Risks

A significant news event, such as the central bank intervention, can cause a stop out because of abrupt, continued, sharp fluctuations in the currency market.

Risks associated with Traders

The Trader discontinues without notice or changes their trading strategy or becomes too aggressive, which could mean riskier trades that do not agree with the Follower`s risk profile.

The Follower subscribes to the wrong Trader who starts off well with seemingly high profits at once but with no long-term proven trading history. It is always necessary to examine the trading style and get information about how some Traders enter the market and, more importantly, how they decide to close loss-making trades. Traders who have a long history of steady and stable profits instead of Traders who have had a brief stint of high profits.

When a Follower subscribes to too many Traders` accounts at once, they can fall into a trap of overtrading and run the risk of being stopped out. Some diversification is advisable but too much can be harmful. It is comparable to individual trading and making the mistake of opening too many positions within short periods of time. Running a copy trading account Followers should ensure that they keep within their margins since all the actions from the Traders` accounts also reflect in their accounts.

Risks associated with specific strategies

Risks associated with a Martingale Strategy Trader. These are the most risky Traders to follow. To an inexpert eye, they are the most appealing, and it is the most tricky feature of them.

The Traders who employ the Martingale strategy do not recognize their losses. They simply double down and can gain profits for several days in a row. The losses are rarely apparent and such Traders are often in the top positions in the rating.

The methodical unwillingness to cut losses is the most risky in investing in general. It`s true that the technique frequently ignores account losses when the price changes direction. You just wait a few days, and the martingale takes its course, quickly recovering all the losses.

The problem arises when the price changes direction in a persistent manner and results in a stop out in your account with horrendous losses.

Risks associated with a day Trader. Day Traders are all about the right mindset. With day trading you could see a long series of small losses before seeing a profit and you could come across losses and profits very similar to each other, before seeing a real and permanent capital increase.

Day trading techniques commonly follow the pattern, whereas profits and losses at certain periods tend to be equivalent, and that the account balance remains fairly constant, falls slightly.

It`s just a matter of having patience in the strategy of the Trader whose strategy is going through a bad turn of the cycle, but that, if the strategy is effective, sooner or later it will come back to profit.

The risk is your inability to wait.

Risks associated with a long-term Trader. An investor who follows this kind of Traders should be aware of the need to have the right mindset.

When Followers subscribe to long-term Traders, they may not see any substantial profits but rather small losses at the start.

In general, Traders who seriously use long-term techniques are the least risky of all as they often set stop losses and let profits run. It`s not a quick process.

For many Followers this can be a problem because assuming they have made the wrong choice, they unsubscribe from the Trader early not giving enough time to the strategy to express its potential.

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