Copy trading is extremely popular among traders as it gives them the opportunity to copy the moves and strategies of a successful trader who has achieved a certain amount of expertise in this space. When you opt for copy trading, you don’t have to pay high management fees. You can replicate the trades carried out by an expert trader by paying a small fee. The fee you are charged is usually 5 – 10% of the profits made by the follower.
It is interesting to note that copy trading also works very well for principal traders. That is because they manage to earn an additional income along with the profits they are making out of their trades. Out of all the profits made by the follower trader, 5-10% goes to the principal trader. To achieve success as a copy trader, you must first understand how it works.
How Does The Copy Trader Setup Work?
As you start studying the concepts of copy trading, you have to familiarize yourself with the term principal trader. When you get a proper understanding of copy trading, you will realize why understanding the role of a principal trader is so important.
A principal trader can be best described as an expert trader who gives permission to other traders to copy their trades. For giving newer traders the opportunity to do this, a principal trader receives a share of their profit. Know more
While copy trading proves to be lucrative for new traders, it also profits a principal trader in several ways. If they are proactive and do things correctly, principal traders can make a lot of money via copy trading.
If a principal trader is keen on increasing their profit share from copy trading, they have to work towards increasing the number of followers they have and find trades that turn out to be profitable. They will also take some measures to safeguard their trades from probable losses.
New traders prefer following experienced traders who have a good track record to boast of and can assure them of good profits. Therefore, to have more followers, you need to work on putting together strategies that bring good dividends and make your followers feel confident about your methods.
What Are The Strategies a Principal Trader Need To Come Up With?
When you are a principal trader trying to make some profits through copy trading, it is imperative for you to study the market carefully and learn to manage the various risks associated with it. Following are some of the popular strategies implemented by principal traders.
Analyzing the Market Conditions
Sometimes, a particular strategy might lead you to a few winning trades and then, could make you deal with a bunch of trades that don’t land well. This happens because the market keeps going through change at regular intervals. If you make some gains from copy trading as a principal trader, you have to keep an eye out on the market all the time.
As far as sideways markets are concerned, a range-bound trading strategy proves to be extremely fruitful. However, the prevailing trends have to favor your strategy. When the market is characterized by volatile conditions, breakouts tend to work very well. When there is lesser volatility in the market, you can manage to miss out on some losing trades. Know more market times forex
Even if you are planning to follow a tried-and-tested policy, you must remember that it would not ensure you guaranteed success. The success of a particular strategy or plan greatly depends on the market conditions at a given point in time.To analyze market conditions, you must know the different types they are divided into. The market could either be range-bound/stable or volatile/trending.
Before you opt for any particular strategy, you should study the market diligently and try to figure out whether it will work in the prevailing market conditions. Even if a particular strategy you have come up with doesn’t seem viable now doesn’t seem to be viable now, you should remember it and use it sometime in the future.
- Volatile Market Conditions
When the market is volatile, you should try and adhere to trend-following strategies. Good values don’t persist for very long in trending environments. If the market trends are on a high, you should consider buying the dip. When the trends hit a low, then you could benefit by selling the breakdown.
- Stable Market Conditions
In range-bound markets, mean reversion strategies prove to be quite lucrative. Even when the market rallies, there is minimal chance of it moving to the upside. In such situations, breakout trades don’t generally perform very well.
Be Aware of Your Risk-To-Reward Ratio
Unless a particular trade draws to a close, you will not get to know whether it will turn out to be profitable or not. There is a notion among traders that the market operates in a very random manner. That’s far from being the truth. If you study the market on a regular basis, you will be able to come up with the kind of strategies that would help you make a profitable trade.
Sometimes, a trader risks a large amount of investment to make a marginal profit. While there is nothing wrong with it, you have to be sure about your priorities and how you want to move forward. You must ensure that the kind of risk-to-reward ratio you set for yourself should benefit you in the long run.
Be In Charge of Your Risk Levels
Drawdown refers to the peak-to-trough decline a trader faces at some point in time. While traders try to stay away from a drawdown-like situation, they end up facing it once in a while. If you plan things carefully and remain calm, you will not face too many difficulties in pulling yourself out of such a situation.
Unfortunately, a lot of traders panic and end up taking wrong decisions while dealing with a low. During a challenging situation, it becomes all the more important for you to manage your risk levels carefully. While trying to get yourself out of a difficult situation, you should only opt for strategies that you are fully sure about.
