How to Copy Trade Binary Options
Binary options trading is simple. All you have to do is make the right pick and you’ll get rich, right?
If you believe that, then you really need to read this article!
Where to Start?
Contrary to popular belief, copy trading is one of the riskiest ways to trade binary options. It is also important that you approach it with the right mindset. Copy or so called social trading is more challenging than people think and it does involve having a strategy. Additionally, you have to choose a good platform to do it on, to be successful. If you want to know more about the platforms, you should check out the review of eToro here.
There is plenty of available platforms and many of them are are of poor quality, only looking to attract naive traders. One of the platforms we can recommend is IQ Option – find the review here. It was voted the best binary options signals provider in 2015, 2016 and 2017.
Extra tip: Instead of binary options copy trading you can also consider a social trading network.
Choosing Your Assets
When deciding which assets to trade, try to avoid any unwanted correlations. When assets are correlated it means that the price movement of an asset has a direct effect on it’s correlated counterpart. Correlated assets are mostly present in forex pairs such as EUR/USD and USD/JPY (in this case, the prices move opposite to each other). Of course the market is always connected and most assets have an effect on the other. However, you can avoid the most obvious ones. We advise that for a simple reason: it simply nullifies the effect of diversification. If you don’t know which assets to start with, we advise you to start with a portfolio like this:
- A Stock
- An Index
- 2 non-related Currency Pairs
Social trading is the same as any other sort of trading. You need to diversify to spread your risk. Aimlessly copying isn’t the best approach. Even if you really like a trader with an extraordinary record it still doesn’t mean that it will go on.
This means it is a smart move to follow more than one trader and even then it is still a risky proposition.
A good move is following more than one trader, but make sure they are not trading the same assets. This means picking 3-5 different assets and choosing your favourite trader for each. This means you are not too dependent on a single broker, furthermore you are not invested only in a single asset.
This means that even in the case when one of your traders or assets is doing badly, you still have 4 other assets to rely on.
When searching for a trader to copy have a rundown of possible outcomes for every situation. Imagine you were the coach of a football team: you would need to have a first team and a second team right? A similar thought applies here.
Clearly you need to pick the best trader of the bunch, the one with a lot of logged trades and the best win rate would be our recommendation (always look at longer time frames), however you will need to have a back up in case something goes wrong. It’s conceivable that the trader you chose isn’t active enough, hits a losing streak or essentially falls behind as time moves on. At the point when this happens its you should move the old trader out of your portfolio and turn to a new one.
Copy Trading using Robots
Using binary robots when copy trading increases your risk. Robotized exchanging implies you lose the control you have over your trading. With this type of copy trading you should take the necessary precautions limiting the total losses in a row is one of the precautions you can take. It is very important to use these tools. If the platform doesn’t offer them, you should look somewhere else.
One of the most recommendable binary options robot is option robot – you can read the review here.
As we mentioned in the previous chapter, risk management is vital and the most important part of your trading game. Use the available risk management tools your platform offers, they are there to help you out. You shouldn’t just follow a trader and kick back and forget about it. Keep your trades small, we recommend having a 1-3% of your account asset per trade. Also, always follow for a short time period. Even with the best platform and a quality trader you could come back to realize you lost all of your assets.
Some Final Thoughts
There is nothing wrong with copy trading. It’s alright to follow another person’s skill, but stay smart about it. The first crucial thing is picking the best platform. Then you have to actively copy trade and use the above tips. Try not to be reckless and immediately follow the hot trader. Assume responsibility for your trading. If you constantly learn something while you’re at it, you are already winning.