Are Many People Still Interested In Copy Trading

By the end of 2021, the industry's market value was $2.2 billion.

However, our current market circumstances limit copy trading.

Copy trading has become one of the most in-demand services in the retail trading business. It was popularized in the early 2010s by a few platforms such as eToro, but today practically every well-known broker offers copy trading services.

However, the notion of copy trading originated in the early internet era's social trading, when skilled traders shared their trading tactics on forums and other platforms. Copy trading merely refined that method using technology, enabling novice traders to make experienced trades instantaneously.

Sam Rudnick, eToro's Head of Popular Investor Program

“Copy Trading helps our users to diversify across asset classes or instruments they may be unfamiliar with by following a more experienced trader,” said Sam Rudnick, Head of eToro's Popular Investor Program.

The approach became popular as the business saw an increase in the number of retail dealers. It also provided an additional source of revenue for experienced traders. eToro alone has over 2,200 professional investors whose portfolios may be copied, with 12 having more than $10 million in copying their methods and portfolios.

The total social/copy trading sector is likewise big. According to The Insight Partners, it is predicted to increase at a compound annual rate of 7.8 percent, reaching a market value of $3.77 billion by 2028. At the end of 2021, the industry's market size was $2.2 billion.

However, many industry analysts feel that the prevalence of duplicate trade is dwindling.

“The rise of 'Reddit' style duplicate trading has undoubtedly begun to slow down,” Nick Battista, Market Strategist and Finance Expert at tastytrade, told Finance Magnates.

“I feel that part of the reason for this slowdown may be linked to market circumstances, less rapid satisfaction, and more 'pain trade' through the market's sideways/down movement.” Seasonality also has a role; traditionally, market liquidity falls over the summer months as more casual traders shift to other activities.

The Appeal of Copy Trading

Anyone, whether a beginner or an expert, may employ the copy trading received. While novices might imitate someone else's techniques to potentially benefit and learn about trading, professionals can also apply someone else's strategies; after all, there is always a better trader.

Furthermore, professional traders who match the tough standards of the copy trading platforms may share their tactics to make a consistent income if they successfully garner followers.

High-Flying Copy Trading Platforms

Despite the negative expectations, the copy trading sites are functioning quite well. Though the platforms do not provide particular data, their overall performance remains remarkable.

NAGA, a German website that provides copy trade services, has been generating record figures for consecutive quarters. The firm earned €55.3 million in sales in 2021 and another €18 million in the first quarter of 2022.

“We are pleased to see a lively start into 2022 and NAGA progressing steadily toward its objectives,” stated NAGA CEO Benjamin Bilski previously. The corporation is currently working on obtaining additional regulatory permits and is placing a large bet on bitcoin services.

eToro, which missed the deadline for a SPAC agreement to go public, completed the fourth quarter of 2021 with a profit of $304 million, an 85 percent rise year on year. Furthermore, its net trading profits increased by 50 percent.

ZuluTrade, another prominent copy trading site, was bought by the Finvisia Group last December for an unknown price. The platform is now focused on growth, obtaining regulatory permits, and developing functionality.

Copy trading is not without risk.

According to ZuluTrade, just 63 percent of traders who copied someone else's trading strategy gained between September 2021 and August 2022. This percentage is far higher than CMC Markets and Pepperstone, which indicated that 78 percent and 81.18 percent of their customers, respectively, lost money trading CFDs.

Brokers frequently pitch copy trading as very safe and suited for inexperienced traders. However, there are always hazards.

“Rather than the idea creation follow/copy trading gives, novice traders tend to go toward absolutes, 'what is the BEST trade' or 'what is the BEST approach to manage this position,” Battista noted.

“After a handful of wins or losses, I believe most new traders realize that the market is full of faulty information and that eventually, following someone else may not always meet their risk tolerance, capital restrictions, and directional assumptions.” From there, they recognize that the ideas and techniques employed are more significant than the actual picks or trades, and they may construct their assumptions and be more cautious about which trades to follow or duplicate.

Another danger of copy trading is reducing market liquidity. “If a copy trade creates a significant number of transactions in the same direction, this might trigger a price gap and slippage for investors,” said Harry Turner, creator of The Sovereign Investor.

Regulations Have the Potential to Ruin Copy Trading

Regulations are usually a big issue in a high-risk market like retail OTC derivative trading. At the moment, authorities see duplicate trading as routine trading activity.

“We classed copy trading as portfolio or investment management when no human input from the account holder is obvious.” This comprises basic regulatory requirements for approved management, the FCA has noted.

However, if any of the key authorities, such as the FCA, CySEC, or ASIC, alter their approach and deem copy-trading technique suppliers to be unregulated investment advisers, the whole business may collapse.

“It is critical for copy trading platforms and strategy suppliers to remain outside of the confines of regulated investment management since most copy trading services would not be economically sustainable if regulated as registered investment managers,” stated Charles Qi, Founder and CEO of StockPick.

Despite all of the hazards and market circumstances, copy trading remains popular among retail traders. The success of copy trading platforms in recent years indicates the popularity of the services. With an inflow of new merchants entering the market, this specialized business is only anticipated to develop in the future.

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