Binary options copy trading could be your next favourite trading strategy. Here are the benefits and pitfalls to get you started with this popular strategy.
If you think binary options copy trading is as simple as choosing a winner and waiting for the money to roll in then you need to read this now. There’s a bit more to it than that!
Binary copy trading may look like an easy way to riches, but the truth is it can be risky. So risky, in fact, that you’re going to need a good risk management strategy if you don’t want it to become one of the riskiest endeavours of your trading life. You’ll need to pick a good platform to start with of course, and you can only do that through research. There are many out there, and some of them are gimmicky efforts that seem to have only been designed to attract traders, rather than to actually help them, so read reviews and check out the comments in trading forums before you commit to one for your binary options copy trading needs.
Your other option is to go for a social trading network, where the advice on offer from seasoned pros is priceless, so consider that too for your binary options copy trading journey.
Binary copy trading sounds like the perfect proposition: you find a trader who is successful and you copy their trades, so you get rich! If only it were that simple! As the warning attached to financial products often says, the value of your investment may go down as well as up. And in this case, it can go down all the way to the floor! Just because a trader has established a good reputation for making successful trades, that doesn’t mean that everything he or she does is going to turn to gold. You should be following more than one reputable trader and picking 3 to 5 assets to invest in. Don’t choose more than one trader for the same asset though because you’ll get tangled up by their conflicting approaches. Find traders that you like and assets that you like and then pair them off. This isn’t exactly scientific, but it is common sense way of spreading your risk. This kind of diversification is one of the best tools in your box.
Identifying the best traders comes down to choosing the one who has logged the most trades and secured the most wins over a decent timeframe, and you should select backup traders to too. Even the best traders can hit rough patches and lose ranking so it’s good to have another one waiting in the wings should that happen.
When you pick an asset you’ll want to sidestep undesirable correlations. These happen when a pair of assets are influenced by the same set of catalysts. They mainly occur with forex pairs like CAD/USD and AUD/USD which, in this case, frequently move in opposition to each other. It isn’t possible to dodge every correlation because everything in the market is inextricably linked, but if you’re aware of the more well-researched ones then you should be able to sidestep them. The reason for doing this should be fairly obvious. You’re always trying to diversify, and this runs counter to that. If you’re looking to create a copy portfolio then it should look something like this instead:
Two unrelated Currency Pairs
The last and probably most significant piece of advice to share about binary options copy trading is to make sure you always keep control of your trades and your traders. Your platform will include risk controls which are there to help you guard against avoidable losses. In simple terms, you can’t just follow trader with a “set it and forget it” mentality (because that’s where lemmings go wrong!) Keep your trades to a modest size, perhaps just 1-3% of your account for each one, and only follow for a short while. If you don’t, you could return to find that you’ve lost everything.
Using automated trading robots for binary copy trading is risky. If you do go down this route then make sure to manage your risk level by limiting total losses or limiting the number of consecutive losses. If the platform doesn’t offer risk limitation tools then you should look elsewhere to be safe.
Binary options copy trading can be a route to success if you manage it sensibly. You need to pick the best trading platform and then become an active copy trader using some of the above tips to guide you. Don’t let greed blind you to the risks. Following a successful trader without due caution is a path to ruin. Set limits on how much you risk, set a schedule for how often you’ll check your trades, and find a number of traders to copy so you spread your risk. Treat binary options copy trading like you would any other investment. Be prudent and patient and you will succeed in time.