Wondering what Mirror trading is? It’s an innovative trading strategy that can help you with trading or even setting up your trading strategy. Especially beneficial for newbies, mirror trading allows you to mimic the trading decisions of seasoned traders. Read further to understand how you can incorporate mirror trading to optimize profits while investing.
What is Mirror Trading?
Mirror trading is a forex strategy where a trader uses an innovative approach of investment by using sophisticated software that is designed and developed on the basis of various trade practices adopted by skilled and accomplished traders in the market. Even if you have little to no experience with trading, you can upskill yourself by using such state-of-the-art software. You will have an option to choose and connect to more than one strategies made available by the software platform. As soon as you select the strategy, the signal of the strategy is automatically applied to your trading account. The whole process is automated and, therefore, has minimal human interference. In mirror trading, the investor can spread the risk factor since they are simultaneously trading in more than one strategy. Also, any change like opening or closing in the trade is also replicated on the trading account of the investor. Though mirror trading started in 2005, the service was made available to retail forex traders very recently. It is regulated by the Japanese Banks and Financial Markets Regulatory Agency and is also National Futures Association (USA) certified to offer the services under the Commodity Futures Trading Commission Act.
Pros and Cons of Mirror Trading
Mirror trading allows riding on the expertise of the best traders in the market by using strategies of the best investors in the market. Mirror trading eases the process for investors who lack the expertise in trading and struggle with setting a strategy – therefore a trader is saved from emotion-based trading decisions. There is little stress on the investor since they are not the ones making any decisions. The investor is also updated about the trades without being actually involved. Mirror trading gives you the option to choose from multiple useful tools to examine different trade practices of accomplished traders. This creates a sense of confidence in the minds of investors before they decide to invest. This method also allows the investor to manage the risks as per his requirement since he has full authority over his investment.
Even though at first glance mirror trading may appear attractive, it does have a few cons as well. There is an inherent lack of sufficient historical data – since the records available are comparatively new, there isn’t enough data is available to know how the strategy is going to react to severe changes in the market. There is also some difficulty in assessing risk – it is not easy to explain the quantum of the risks taken to earn the profit. Moreover, for investments where the management fees outweigh the profits earned, it is futile to use mirror trading and spend your money on it since you incur disinvestment at the end of the day.
How to Use Mirror Trading
You first need to closely examine the historical data and particulars of different available trading strategies by using a forex trading platform.
Then you are ready to easily select a trading strategy from the options depending on:
- Your investment target
- Your appetite for risk
- What kind of capital gains you are looking at?
- Which currency are you comfortable with?
With the help of automated software, the trades executed will be mirrored in your (trader’s) account. Since the trade order of both the account manager and mirror account are bunched together as one batch, there are hardly any delays before the order is placed.
Mirror trading can be used in three different ways – in fully automated, semi-automated or manual mode.
In the fully automated mode, investors can access the mirror trader and are free to locate and choose a strategy that they may want to replicate. The system would actually open and close for the investor. The investor is able to view and check all the previous performances of strategies and the current market conditions on a real-time basis.
In semi-automated mode, the investors choose from the Open Signals Sections the signals that keep popping up from time to time and can choose to replicate it.
In the manual mode, investors are able to view all the trading signals. They can then select a strategy suiting their requirements after looking into all the options available. They will be able to decide on their own when to open and close, manually, similar to any other forex platform.
The advent of mirror trading has also led to other innovations like social trading and copy trading. Mirror investment could look spectacular but it attracts only a small segment of the pie. Transparency and being able to use the expertise of the best in the trade are the greatest advantages of mirror trading. Investors should always weigh the pros and cons before deciding to invest in mirror trading. Investors who want to trade using mirror trading must take some precautionary measures before entering the market because they are solely dependent on the strategies of someone else’s expertise. In case an investor is looking for high returns that do not match with the method of the expert’s approach, then the investor will have to seek an alternative investment method in the market. However, mirror trading still attracts a lot of beginners in forex trading. The investor has multiple trading platforms options, which offer their expert services to access the market. Sophisticated tools are offered to the investors to scrutinize and review the trade before deciding to enter. It has now become easier for the investor to choose the platform from which he wants to start his investment. Still, the investor should always ensure the safety of his capital before he decides to venture into any risky investment.