Today, the forex market has become the world's largest financial market. The savvy always follow the trend, and increasingly more investors are paying attention to forex copy trading.
To save time and effort, forex novices often opt for copy trading software, linking their accounts with those of highly experienced or profitable forex traders to follow their trades. Let's talk about the ins and outs of forex copy trading today.
Forex Copy Trading vs. Forex Signal Calling
Forex copy trading and forex signal calling are very important elements in copy trading.
Firstly, what is forex signal calling? It involves experienced or profitable forex investors, especially professional analysts and individual investors, publishing the details of their trading orders. Traders can use the content of these calls as a reference for their own trading.
What is forex copy trading? Automatic copy trading can be seen as an "upgraded version" of traditional copy trading. It uses various platform systems to automatically follow the trading signals of profitable forex investors and execute trades accordingly.
Who is Social Trading For?
- Part of the audience includes trading novices, or those who lack the confidence or knowledge to place trades in this market;
- Another part includes traders who do not have enough time for trading.
Comparing Same-Platform and Cross-Platform Copy Trading
Same-Platform Copy Trading:
Compared to cross-platform copy trading, same-platform has not only the cost advantage mentioned earlier but also benefits from operating on the same platform. All orders are copied directly through servers or VPS, closely replicating the master account's trading signals. This minimizes signal propagation time, leading to lower latency compared with cross-platform copy trading.
Cross-Platform Copy Trading:
In cross-platform copy trading, the interaction protocol between brokers is transparent for both signal providers and subscribers, allowing their accounts to belong to completely different brokers. However, this often involves third or fourth-hand signals, potentially causing copy trading delays.
Technical Division – EA Copy Trading and Service-Based Copy Trading
Based on technical aspects, copy trading can be divided into EA (Expert Advisor) copy trading and service-based copy trading, with the main difference being that EA relies on a specific trading system while service-based copy trading does not depend on a single trading system.
EA copy trading includes local EA copy trading, network EA copy trading, service-based EA copy trading, single-broker service-based copy trading, and multi-broker service-based copy trading.
What are their specific characteristics and contents?
1. Local EA Copy Trading:
This method is based on operations conducted on the same computer, opening two MT4 platforms, and sharing local files between sender and receiver to achieve copy trading.
This traditional mode of copy trading requires both the trader's and follower's accounts to be executed on the same computer. Its advantages include simplicity and convenience, as well as the ability to cross platforms.
2. Network EA Copy Trading
Compared to local EA copy trading, network EA copy trading does not require completion on the same computer. The sender and receiver share a network location, such as FTP, for remote copy trading.
Network EA copy trading meets cross-regional requirements but may experience higher delays in copy trading. It requires configuring a shared network, and the states of traders and followers are invisible to each other, making it more prone to losing orders.
3. Service-Based EA Copy Trading:
Service-based EA copy trading is not done through sharing files but by finding a copy trading service where both sender and receiver communicate with a centralized copy trading service, which supports both sender’s and receiver’s EAs without relying on shared files.
This involves intermediary service processing, which can automatically complete follow-ups in the cloud. Compared to the previous two methods, it provides faster following speed, but both sender and receiver still need to keep their computers on and run the EA provided by the copy trading service.
4. Single-Broker Service-Based Copy Trading
Single-broker service-based copy trading is developed based on the broker's own trading system.
This method, often referred to as same-platform copy trading, offers quick copying and low latency without the need to independently operate a computer. However, it's limited to the broker and can't access other brokers' trading signals. It represents a closed loop for the market and demands high standards for the broker's platform risk management, liquidity, and compliance.
5. Platform Service-Based Copy Trading
Cross-platform service-based copy trading integrates multiple brokers and trading systems through development protocols.
The advantage of this method is its quick copying speed and low latency without the need for independent computer operation or EA hook-up. It supports various brokers, offering an open market with high selectivity. It comes with an independent follow-up risk control system supporting multiple brokers.
However, its drawbacks are apparent, requiring third-party service platform support. It also needs to address the risk control issues arising from different account funds between followers and traders, as well as the problem of differing spreads among various broker platforms. The implementation is challenging, requiring comprehensive technical solutions and, compared to same-platform copy trading, has some delay.
Transmission of Copy Trading Signals
So, how are signals transmitted in copy trading platforms? (Taking MQL as an example)
- On the signal provider's side, a trader or EA conducts trading operations on their terminal.
- The trading information is sent to the broker’s trading server where the signal provider is located.
- The MetaTrader signal server, using a designated read-only password, connects to the signal provider's broker server and receives all trading operations in real time.
- The subscriber's terminal remains connected to the MetaTrader signal server, thereby receiving all trading operations in real time.
- Trading operations are executed on the subscriber's broker server.
Requirements for Copy Trading Signal Providers
Whether it's international or domestic copy trading platforms, they generally require signal providers to offer real trading accounts with at least three months of real trading records. They impose strict conditions on profit margins, fund drawdowns, holding times, etc.
As copy trading sites require traders to showcase their trading records, most novices can choose suitable trading experts for copy trading based on provided metrics such as win rates, drawdown rates, profit curves, return rates, and net value curves of funds.
Trading experts, or signal providers, need to meet some of the platform's stringent criteria. While this doesn't guarantee that they will be continuously profitable traders since past achievements can't predict future performances, meeting these criteria indicates that they have achieved significant trading success in the past.
Traders choosing signal providers should also consider their fund size and risk preference, as the best choice is one that suits their specific needs.
Well-known copy trading communities include MQL5, ZuluTrade, Followme, etc. Those interested in copy trading might find it worthwhile to explore these platforms for potential signals.
