What is Mirror Trading & How Does it Work?

Mirror trading allows traders to copy the positions of other traders on online trading platforms, using an automated system. Thanks to automated systems, the copying can take place extremely quickly.

Trading with an ipad and a computer screen

Mirror trading for new traders

For novice traders, mirror trading can be an easy way to learn and experience real-money trading on an online platform. You can chose an experienced and historically successful trader (or traders) and follow them.

How does it work?

Exactly how the mirror trading works will depend on the broker and trading platform. This is one example of how it can work:

  1. A trader that fulfil certain requirements can elect to list themselves as a Master on the platform. This means that other traders can elect to follow this trader through mirror trading.
  2. If you want to be a follower, there will be many different Masters for you to chose among. You can follow one or more Masters. The Masters will display their historic results on the platform, so you can see how successful they have been in the past. Of course, past success does not guarantee future success. You always risk losing your money, even if you follow a well-established Master with a stellar track record.

Is mirror trading only for forex?

No, it´s not just for forex. Most platforms that offer mirror trading will have Masters available for a wide range of assets and instruments, including stocks and stock options.

FTSE 100 shares

Quite a few of the platforms utilize Contracts for Difference (CFDs) instead of, or in addition to, classic instruments. This makes it possible to speculate on the price movements of a wide range of assets without actually buying and selling them. It also makes it easy to speculate on things such as indices.

Is mirror trading only for daytrading?

No. Some Masters are daytraders, but you can also find Masters that utilize more longer-term trading styles, such as swing trading.

Masters and risk-willingness

One important aspect to take into account when choosing a Master to follow is risk-willingness. Some Masters have a high-risk strategy, others go for more low-risk, and there are of course also many Masters in between.

Important: You can lose your money even with a low-risk strategy.

Platforms

Some platforms, such as eToro, have mirror trading at the core of their business model. Others have added mirror trading as an extra on the side, and most of their users do not participate in mirror trading (neither as masters nor followers).

What´s an EA?

In this context, EA is short for Expert Advisor, and the Expert Advisor is a bot that will execute trades based on an underlying algorithm. When market conditions are right (in relation to how the bot was programmed), a position will be opened or closed on your behalf, if you are using an EA.

Computer monitors in a digital world

It has become popular to use EA:s for mirror trading. Not all mirror trading is based on EA:s though; the two things are not synonymous.

Why is mirror trading popular?

Here are a few examples of why mirror trading has become popular.

Mirror trading allows you to automatically mirror trades done by a more experienced trader. There are many Masters available that put a lot of time and effort into studying markets, analyzing price movements, keeping on top of news, and so on. Through mirror trading, you can save yourself the trouble and simply mirror them.

Mirror trading prevents you from being tricked by your emotions. Positions are opened and closed automatically, and you don´t need to fret about it. There is no risk of you panic-selling or keeping a position open for too long due to sudden greed.

Why do people want to be Masters?

If you have a successful trading plan, why let others copy it? On most platforms that support mirror trading, Masters are compensated for their work. That means that successful traders can earn extra money by being Masters.

Typically, the compensation is not fixed. Instead, factors such as number of followers, number of follow-trades and the commissions paid by followers can impact the compensation.

Risks

Mirror trading is not risk free trading. With mirror trading, but profits and losses are mirrored. You can lose all the money you risk, so never risk more money than you can afford to lose.


This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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