Forex Copy Trading – Does It Work?

  • August 1, 2022

It’s no secret that the forex market is a hard market to crack, with around 70% of traders losing money in the markets. As humans, I think that the overwhelming majority of us would rather ride someone’s coattails to success, given the chance.

This is how forex copy trading was born. 

For those beginner traders looking to get to grips with trading and start earning money within the forex markets, copy trading seems like a great idea. You can mirror the trades of profitable/professional traders and make money with very little work on your end. In theory, copy trading is a no-brainer, right? Well, no.

 In this article, we are going to break down exactly what forex copy trading is, how it works, whether it’s profitable, and everything you need to be aware of before copying someone’s trades. Let’s get into it…


Forex Copy Trading – Does It Work?

In theory, forex copy trading does work. However, we all know that theories aren’t always too sound when we apply them in real-life situations… 

The principle of forex copy trading has been around for many years. You find a profitable forex trader that is consistently making money within the markets. For a small fee, they allow you to mirror their positions in the market. They get an additional revenue stream by allowing you to copy their trades. You get to leverage their knowledge and hard work to increase your gains within the markets. So, in this theoretical situation, all traders are winning! However, there are a number of different aspects to copy trading that can quickly throw a spanner in the mix…

How Forex Copy Trading Works

There are two different types of copy trading in the forex market. Manual copy trading and automatic copy trading. Let’s start with the manual option…

Manual Copy Trading

Manual copy trading is also known as forex signals. This is typically where you will pay a trader upfront for their market calls. This can range from £20 – £150 per month for trading calls. The trader you’re copying from will then send you a brief message with trade details. An example would be ‘Buy GBPNZD Market Price – 50 Pip SL, 150 Pip TP’. When this message hits your phone, you would have to execute that trade on your trading app, using your own lot size calculations and risk parameters. The benefit of having manual trading signals is the fact you can choose to ignore trades when they come in if you don’t like the look of them. The drawback of this method would be the fact you have to put the trades in the order book yourself and if you’re busy at work, or asleep, you’re going to miss trades that would potentially net you a nice profit.

Automatic Copy Trading

Automatic trade copying has become much more popular over the last few years with platforms like eToro exploding within the online retail trader community. Much like with the manual option, the expert forex trader will open trades, and they will get sent to you. However, you don’t need to do anything or even log onto your trading platform. This is great for forex traders with full time jobsThe trade will be automatically placed on your account with the exact same take profits and stop losses as the expert trader. This is a huge time saver and means that every trade will be taken, with no exceptions. However, the downside is the fact you have no control over what trades are taken, and you must blindly trust the copy trade provider. This is the fundamental problem with copy trading, you’re putting blind trust in a trader to make the right calls in the market, with no oversight from you.

Is Forex Copy Trading Profitable?

Asking if copy trading is profitable is like asking ‘how long is a piece of string’. It’s the wrong question to be asking. The reality is, copy trading is both profitable and not profitable, depending on who you’re copying trades from. There are forex traders making a consistent 5% per month in the markets with a very low drawdown. If you copy their trades, you would be a profitable copy trader. However, there are traders consistently losing money in the markets but still allowing people to copy their trades. You get my point here…

To understand whether you’ll make money copy trading, you need to understand exactly who you’re copying trades from. If they have a large Instagram following and a few financed cars, this doesn’t mean they’re profitable, at all. Before starting to copy any trader, request a full track record on a third-party verified website. This is most commonly MyFxBook or eToro. By having access to their full track record, you’ll be able to see the exact stats you’re working with and assess whether you’ll be making money by copying that trader. I don’t want to come across as a pessimist here, but it’s important to assume all traders are unprofitable until proven otherwise. Rookie traders lose millions per year by trusting these social media traders with no backing or stats. If a trader isn’t willing to share a track record, this is a huge red flag – move on.

Is Forex Copy Trading Good For The Long Term?

Forex copy trading is not good for the long term and there are a few reasons for this. Firstly, you are pinning your hopes and dreams of financial freedom on a trader you’ve probably never even met. By this, I mean the trader could pack up shop and never open another trade. Or they may go off the rails and remove their risk parameters one day, opening you up to huge losses and undoing years of work. Whilst putting all of your trust in, essentially a stranger, you will never be able to be secure financially, like you would be if you were trading for yourself.  

Secondly, whilst copying the work of another trader, you aren’t growing your skill set within the market and developing the skills needed to become profitable. Complacency is a killer when it comes to progression. If you’re making a nice realistic return from forex trading without having to learn how to trade or understand the markets, where will your motivation be to actually learn… The only way to succeed in this game for the long term, as a career, is to trade your own strategies and do it for yourself. Copy trading is doomed to fail in the long term.

Let’s take a hypothetical situation. There are 2 traders in this situation.

Trader 1 – Does solely copy trading with £1000 in his trading account.

Trader 1 averages 3% per month with copy trading, which is great! He is cautious about who he is copying from as they have no proven track record, hence why he only invested £1000. After 18 months: Trader 1 has £1652 in the trading account!

Trader 2 – Does not do copy trading, instead learns to trade forex herself.

Trader 2 spends 6 months learning the ropes, then joins Lux Elite Club. After another 3 months, she has £100,000 in trading capital from the prop firm and averages a 2% gain per month, with a 70% profit split. After 18 months: Trader 2 has a £100,000 funded trading account and has withdrawn £44,000 in profit – with no risk of her own capital!

We are biased, of course – but you understand the point! Learning to trade forex and taking on funded trading accounts is a much faster way to grow your capital.  

The Pros & Cons Of Copy Trading

Now that we have run through various different aspects of forex copy trading, we can recap the pros and cons to decide whether it’s the right move for your portfolio.

Let’s start with the pros…

The Pros Of Copy Trading

  • You may make profits. Notice I have put ‘may’ here. This is obviously the main objective of everyone who is looking to start copy trading. Whether you actually make profits, though, is down to the trader you’re copying from.
  • Being able to track the trades and start understanding how professional traders analyze the markets. Providing your copying from a professional trader, is a great way to understand the markets and analyze what they’re doing. The end goal of this would be to be able to trade for yourself and no longer rely on copy trades to grow your trading portfolio.

You’ve probably noticed that there aren’t many pros, right? So let’s take a look at the cons…

The Cons Of Copy Trading

  • You will most likely lose money. You really do need to err on the side of caution when trusting a trader to take positions on your behalf. With 70% of forex traders losing money, many of the ‘traders’ selling their trading services are unprofitable, looking to recoup some of their lost money in the markets.
  • You aren’t learning how to trade for yourself. By copying trades, you are not learning to trade the markets yourself. This means you will be forever dependent on other traders to make a living within the markets – this is not a great way to operate.
  • You’re trusting a stranger with your money. This is me being crass, but you get my point. You’re trusting your financial decisions within the forex market on a stranger who most likely has no qualifications within the markets. This is a huge risk and not something I would ever advise.

With these factors in mind, we would advise it’s best to avoid copy trading and focus on learning to trade forex instead.

Conclusion – Should You Use Forex Copy Trading?

In summary, although forex copy trading is a great idea in principle, there is a huge level of risk that comes with it. This risk comes from the traders you’re copying from and assessing their actual trading ability. You’re much better off learning to trade forex yourself, than taking on a funded forex account. This is still much faster than growing your portfolio with copy trading, so you won’t be wasting time by learning to trade for yourself!  

Looking to take on funded forex trading accounts? Work with Lux Trading Firm now!