Copy trading

Why we advise against copy trading – A critical look at scalability, dependency and hidden advantages for traders

introduction

Copy trading, the act of copying other traders' trading strategies, is often marketed as an easy way to get started in the world of trading. But behind this attractive facade lie some critical issues that investors should be aware of. Here we discuss why we advise against copy trading due to scalability issues, high dependency, and potential hidden benefits that copy traders enjoy.

The limits of scalability in copy trading

At first glance, copy trading seems to be a scalable concept – more capital can simply be distributed among successful traders. However, the reality is often different:

• Market liquidity : Large trading volumes of a successful trader cannot always be easily copied in illiquid markets, which leads to slippage and poorer execution prices.
• Performance pressure : More capital means higher expectations and pressure that can affect the quality of decisions. A trader who has been successful with smaller amounts will not necessarily achieve the same results with a large portfolio.

Dependence on other traders

When copy trading, your success depends directly on the decisions of others:

• Loss of control : By outsourcing your trading decisions, you give up some control over your investment. This can be problematic, especially during volatile market periods.
• Transparency and trust : It is difficult to fully understand and verify the trader's risk management strategies and actual skills. Many platforms provide limited insights into actual trading activities.

Hidden advantages for copy traders

Copy traders can receive preferential treatment from brokers and platforms, which is often not obvious:

• Commissions and Fees : Traders who share their strategies often receive discounts or bonuses based on the volume of trades copied. This could entice them to trade more than would make sense purely for investment reasons.
• Competitive pressure : In order to rank higher on platforms, traders may adopt riskier strategies that may produce better results in the short term but may be risky in the long term.

Conclusion

While copy trading offers many advantages at first glance, such as access to experienced traders and potential profits without a deep understanding of the market, the risks and problems should not be underestimated. The dependence on others, the limits of scalability and, last but not least, the possible conflicts of interest are serious considerations that investors should make.

Investors who have sufficient knowledge and time may consider investing directly or choosing alternative, more transparent and controllable forms of investment. In any case, it is advisable to conduct thorough due diligence and be aware of all aspects of copy trading and the respective platform before deciding to entrust your hard-earned money to it.

Fraud warning

Unfortunately, fraudsters always find their victims in this environment. We educate and hope that we reach many people before they are lured by dubious offers and subsequently lose their hard-earned money. To prevent fraud, we have set up a separate blog section in our association https://member.ai-fae.org/de/?refs=70

Pay attention to the following criteria to protect your money:

-Is your contact real or is it possibly a fake profile?

-Should they transfer money to any platform?

-Do you receive services or goods only based on agreements, possibly by advance payment?

-What results does an internet search yield for the product or service offered?

-Are you being lured with extreme returns? E.g. 5% every day.

-Is there an imprint, a managing director (CEO) and a verifiable commercial register number?

-Do you have to pay money in advance or in monthly installments?

Conclusion and outlook on the world of trading

We hope that this introduction to trading has prepared you optimally for the topic of the stock market. In order to trade profitably on the stock market in the long term, you still need profitable strategies and the right mindset. Both will soon be made available by the AI Finance Association with cooperations and by AIFAE's own members.