Many tell newcomers to seriously consider mirror Forex trading. But what is it, exactly?
Defining Mirror Trading
In some ways, trading in foreign currency is like taking an exam. That’s why you really have to study for it, and the stakes are quite high for your money is on the line. Failing the “exam” means losing your money; on the other hand, acing the exam means lots of profits for you.
But what if you know who the nerds and geniuses are in your class? What if you can copy all their answers? Surely that gives you a better chance of passing the exam, right?
This is true, and that’s why in schools, you’re not allowed to copy answers from your classmates. That’s called cheating, and it’s a grave offense. But in Forex trading, copying from another trader is perfectly acceptable. In fact, it’s recommended.
Some trading platforms, even make it easy for you to do so. They offer the trading histories, styles, and various details regarding other top traders, and then you can link your account to theirs. When they make a trade, so will you. They get out, you get out. And when they make a profit, you make a profit too.
How to Do Mirror Trading
In a method like this, it’s actually possible (although we advise against it) that you skip the studying part. That’s because you don’t have to formulate your own trading method. What you’ll only need to do is to make sure that you are following the right traders.
So how do you go about this? Here are some tips to keep in mind:
1. Choose a reputable trading platform. This is perhaps the most important step. It’s not just enough that a platform offers mirror Forex trading. I don’t mean to alarm you, but the Internet can be a very dangerous place, and you may stumble upon a shady operation.
You can get the names of various reputable trading brokers through popular Forex forums, and you can also find them in various financial articles published by the mainstream media like CNN and Forbes.
Then the other aspects of the trading website should fit your circumstances. Is there a minimum amount you have to invest? How much will it cost you in fees? Are the programs they offer for use reliably? You need to get the answers to these questions first.
2. Pick the trader you want to mirror. Your trading platform must have a lot of traders for you to choose from. You can’t just pick the trader with the most number of followers, in the belief that the most popular should be the best. You have to pick the trader yourself, to see that their trading style actually conforms to your own preferences. Some successful traders may be more tolerant of risk than you are, while others may be a bit too timid for you.
Check out the trader’s Forex history and see that they have accumulated a consistent profitable record through the years. You shouldn’t trust beginners here, because they may just be on a lucky streak and that doesn’t go on forever.
3. Check if you can tailor your mirror Forex trading. It’s not enough that you can set the amount of your trading account to link with a particular trader. It’s much better if you can choose which trades you will follow.
For example, if you feel that a particular trader is excellent except when trading in US dollar to yen trades, you can choose not to mirror when the trader deals with these trades. You can therefore focus only on the trades where the trader has a particularly good record.
4. Diversify. This is one of the main mantras of trading. Have you ever had a money manager or stockbroker tell about diversifying your portfolio? In stock trading, this means not putting your money in one basket: not in a single company, and perhaps not even in a single industry. You can can’t just put your money on Google stock or tech stocks. You have to put your money across different industries, so that if one industry fails, your losses won’t be shall we say, catastrophic.
It’s the same thing with mirror Forex trading. It’s better to follow 10 really good traders, than to put all your money on a single exceptional Forex trader. That’s because even the best traders can have a really bad day and there’s always a chance that they will make a fatal mistake. At least when you follow a lot of traders, the chance of them all making a grievous mistake at the same time is very low.
In some ways, cheating may actually be a smart thing to do. Not in school obviously, but in Forex trading. Just make sure that you cheat intelligently!