Forex copy trading: how it works and the risks

Copy trading lets you link your account to another trader so their trades are opened in your account automatically. It can look like a shortcut, but you take on all the losses, and past results say little about what comes next.

How copy trading works

You choose a trader, called a strategy provider or signal provider, and allocate money to follow them. When they open or close a position, a proportional trade is placed in your account. Platforms usually show past returns, drawdowns and how many people are copying.

Copy trading is offered through broker platforms, social trading networks and services connected to MetaTrader.

What it costs

Costs can include the normal spreads and commissions, a performance fee taken from profits, a subscription fee or a mark-up on spreads. Check how the provider is paid; some are paid partly on trading volume, which can encourage over-trading.

The main risks

You lose money when the trader you copy loses. Strategies that show smooth past returns can hide large risks, such as adding to losing positions. Your results can differ from the provider's because of different entry prices, account size and fees. Regulators also treat some copy trading services as investment advice or portfolio management, so check whether the platform is authorised for that in your country.