Copying of binary options trades is an automatic receiving of signals by the trader from successful professionals and opening positions on them. It would seem that it is just enough to find a successful trader and to repeat his actions or take the least successful trader and open opposite positions. In practice, the strategy of social trading carries no less risk than the trust (PAMM) management. How copying of trades works, what are its pitfalls and how to minimize the risk, read on.
How copying of trades in binary options work
It may seem that the trades of successful traders is the simple way to profitable trading. The main thing — to choose the right trader. But in practice, this strategy is no less difficult to implement than technical analysis or advisors. Copying of trades is possible in two ways:
- with the help of a special service (the most famous of them — Zulu Trade);
- using the service that represents the company (if such service is provided).
Zulu Trade works as follows. The subscriber goes through free registration for the service, opens an account with a broker from the list, replenishes the deposit. The social trading market is represented by hundreds of traders. When creating your own portfolio, you can select open mode position, to limit the risks, etc. you can choose one or several traders.
The service offered by the broker, represents an opportunity to copy the trades from their analysts or traders. Trader, in case of connecting the subscriber, receives a commission for each transaction or a percentage of his profits. The brokerage company earns on the spread, the subscriber — on a good trade.
Brokers offering services of auto-copying of deals:
- Verum Option. Has an automated system Profit Follow. Verum Option provides instant copying (transferring positions) from any trader. The advantage of auto-copying from Verum Option — the speed of the transaction to 1.5 MS, which is one of the fastest;
- FinMax. Offers a “Social radar.” The service is free, allows you to select up to 4 providers;
- Expert Option. Offers semi-automatic operation mode — the subscriber decides to open the proposed position or not.
Problems of copying of trades:
- successful repetition of trades is possible only when it is absolutely identical. And it’s not only about the asset or expiry time but also on the amount of the bid and deposit;
- repetition of transactions should be extended. Each manager has a valid loss percentage. Once you are in the wrong band, you can lose your deposit and trade interest, then a trader will continue to work;
- slippage. One cannot guarantee the opening of trades of the trader and subscriber at the same time. Enough to be late for a second, that the subscription will not work. The reasons for the slippage — problems with broker or platform;
- inaccurate quotes of the asset. Quotes from different liquidity providers may vary. And if a trader opens a position on quotations of New York stock exchange, and the broker of the subscriber uses the quotations on the liquidity of the London stock exchange, the results on the same signal can be different.
And that’s just the problem of the technical side, there is also the human factor, which prevents to copy trades.
This tool could be called ideal for beginners and lazy ones, if it were not serious pitfalls:
- ZuluTrade is often criticized for the fact that the platform has no control of successful traders. If we analyze the curves of the deposit more than half of managers, it appears that they use the trade without stops or martingale. That is, tactics that are considered high-risk;
- fake recommendations on entry to ZuluTrade market is another problem, which has been criticized on the forums. Professional accounts should be referenced to MyFxBook with the right to receive investment password. In fact the strategy of managers appear either optional trades on demo accounts, or even drawn. And from the “drain” of the deposit earns broker;
- lack of strategy from signals provider. Brokerage company often does not check the account manager, who may be a scammer. It is enough to open at random a position on demo account, and then there are those who subscribe and pay a fee.
How to choose a reliable signals provider
A few tips on how to obtain reliable recommendations for market entry:
- to choose a trader from those who are working at several brokerage firms and has earned a reputation as a good manager;
- to go to the supplier directly and ask backtest, investment password of MyFxBook etc.;
- to focus on the profitability of the strategy, and on indicators maximum drawdown, the ratio of profitable to loss-making positions, risk management.
Summary. Social trading is a good tool in the hands of a professional who knows how to analyze the market. Novice traders are poorly versed in the problems of duplication of positions, because often make mistakes. Tips for beginners:
- work exclusively with demo account. Auto backup is not a way of easy money, and one way of learning from more experienced colleagues. Analyze profitable strategy, try it to build something of your own;
- take advantage not of auto-copying but trading signals. Grosl Trader tool gives up to 90% good trades. Every signal you can check by the technical tools;
- search for just “Your” broker with a platform and a liquidity provider as the source signals. List of brokerage companies can be found here.
Assess your risks and don’t give up — trading in options even easier than currencies or securities, but still not easy. The website Investlb.com will help you to understand the intricacies of exchange and OTC market — ask questions in the comments after the article!