Mirror trading (MT) is a result-yielding approach that helps traders in Forex markets discover the most outcome-driven opportunities to increase profits. Preferred by those who do not have a lot of experience in purchasing and selling assets of various types, this methodology allows novices to benefit from the expertise of seasoned experts with a proven history of successful operations. Even though MT tools were initially created for institutions, they have already become available to regular clients. In this guide, we will explore the meaning of this approach and demonstrate its difference from similar strategies.
Concept of Mirror Trading
The term MT describes the mechanism of choosing a specific deal on an exchange platform. It is typically deployed by less experienced traders who want to mimic the actions of knowledgeable individuals with high expertise in a particular area. By copying other people’s deals, one can potentially improve their skills and discover how to react to price fluctuations.
Forex mirror trading is no longer available only to institutions. Retail investors actively deploy such tactics, finding a source of inspiration in the choices made by professionals who are not influenced by fleeting emotions when making decisions.
The usage of automated solutions helps individuals control their urge to open or close positions at unfavorable times. Modern brokerages offer a chance to analyze the history of various trading methods and the results of their usage. Traders can compare algorithmic strategies in terms of their performance. Besides, they should consider the following:
- Investment objectives;
- Willingness to face risks;
- The amount of available funds;
- The type of assets they are interested in.
Those who are not ready to implement risky strategies should start by copying safer methods. When the person who developed a strategy conducts an operation, it gets replicated in every mirror trading account automatically. The usage of dedicated software ensures that operations will be mirrored on business days, allowing beginners to achieve returns similar to the results of the original trade.
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How Does Mirror Trading Work?
The deployment of automated MT systems facilitates avoiding decisions based on emotions. When a person uses a mirror trading platform, it allows them to access advanced software to study the history of different strategies and learn more about the details of such operations. Every individual interested in stock markets and the possibilities they open may use reliable broker services to access the desired functionality.
After analyzing various characteristics and estimating the potential profits associated with a specific strategy, a trader adopts a suitable approach. Those who have a limited amount of funds typically prefer an approach with the lowest drawdown. If a person has a high-risk tolerance, they could purchase cryptocurrencies and other assets characterized by volatile prices.
Whenever the main account executes a deal, it gets duplicated in MT accounts. Major Forex brokers typically offer their clients a chance to access pro-grade automated software replicating deals 24/7.
Pros and Cons of Mirror Trading
MT tools are available to people and organizations with different budgets. It emphasizes the significance of this approach among those who are looking for new sources of income. Here are the main positive aspects of using the MT method:
- Unbiased decisions: A person does not need to worry about making decisions under the influence of emotions. Automated algorithms analyze extensive datasets and ensure seamless transaction replication. As many people cannot control their feelings, pre-programmed solutions make it easier for them to avoid failure and increase earnings.
- Convenience: Mirror trading enables investors to save a lot of time and master new techniques quickly. As the prices on stock markets change rapidly, it could be challenging to conduct a detailed analysis of the situation and make informed decisions without delays. Staying well-informed requires spending long hours studying the current situation. Nonetheless, MT features allow traders to focus on top-priority tasks and trust in the experience of seasoned professionals.
- Tried-and-tested methods: Novices quickly become dissuaded from investing when their first attempts to implement viable strategies result in failure. Brokerages add MT tools to help inexperienced clients test out such techniques.
Despite the noticeable upsides of using the mirror trade method, individuals still face obstacles trying to increase their profits:
- Wrong strategies copied: The clients of brokerage services may suffer substantial losses if they choose the losing trades. They should be ready to lose their money if the method they replicated failed. It’s crucial to try copying operations with a limited downside to reduce possible risks.
- Limited control: Deploying trading strategies to follow other people’s operations means that a person who uses this approach cannot change the parameters of the trades. All deals are finalized automatically with the help of an algorithm, which might make more experienced traders frustrated.
When looking for a suitable approach, investors should analyze possible shortcomings and associated risks. Some choose crypto social trading instead of MT, hoping for high returns. Nevertheless, such operations may lead to substantial losses. While they offer a higher degree of autonomy, individuals who deploy such approaches often lose funds if they develop ineffective strategies.
Is Mirror Trading Legal?
Despite the noticeable benefits of the MT method, its critics voice their concerns regarding its usage. After Deutsche Bank was fined by U.S. and U.K. regulators for breaking anti-money-laundering regulations back in 2017, it resulted in debates about the price of financial automation.
MT tools offer an affordable way to benefit from time-tested investment strategies. Nonetheless, criminal masterminds may use them to avoid regulatory wrath. Here are the main arguments emphasizing the dubious legal status of mirror trading:
- Issues with cross-border deals: MT operations take place on Forex exchange platforms in jurisdictions with different AML regulations. Some market participants capitalize on these differences trying to hide the source of funds. It makes it challenging for brokerages to identify threats and follow safety protocols.
- Authentication problems: It could be impossible to identify the transaction participants, which raises questions about possible illicit money transfer usage.
- Market manipulations: Money launderers may affect the prices and inflate the value of specific assets. Increased volatility allows malicious users to impact prices and hide the origin of their assets.
Despite being a reputable financial institution, Deutsche Bank was not prepared to address the issue of dubious dealings. As a result, its traders unwillingly helped major investors transfer their funds while bypassing common control mechanisms. Even authoritative organizations may fail to detect the signs of misuse. It emphasizes the importance of fostering transparency and accountability.
Offering mirror trading tools requires banks and brokerages to establish strict AML guidelines, implement mechanisms that facilitate detecting illicit transactions, and take other necessary precautions. The FCA recommends following such steps to ensure AML compliance:
- 24/7 transaction monitoring;
- Convenient reporting tools to discover suspicious behaviors;
- Regular reports to meet AML guidelines.
These steps allow organizations to stay in the legal field and provide their clients with an opportunity to engage in MT operations without breaking the law.
Mirror Trading vs Copy Trading
Mirror trading requires a low degree of involvement. Outsourcing trading operations to an algorithm allows investors of all levels of experience to harness the potential of winning strategies. Today, copy trading (CT) is considered a safer alternative to MT, as it allows users to deploy other people’s approaches and slightly modify them depending on their preferences and the situation.
The MT method has demonstrated its result-yielding potential, but many investors are dissatisfied with the fact that it does not allow them to control their deals. CT is a suitable alternative for those who don’t want to invest a lot of time in operation with assets. This approach allows beginners to duplicate the actions of recognized experts. It requires creating a dedicated trading account and choosing the most suitable investment strategy available on a platform.
Traders can modify their operations and choose specific experts to follow. If they want to minimize the possible downsides, they should try to follow the investors who prefer careful methods. When an expert uses a risky approach, CT enables traders to adjust their deals to diminish possible risks. This efficient method enables inexperienced users to earn money on profitable operations and avoid losing funds when deploying controversial methods.
CT is best suited for those who do not have the resources and the required level of expertise to engage in professional trading. It is perfect for investors seeking occasional chances to increase their profits without losing a substantial sum. Novice users deploy such strategies to avoid mistakes and master new methods. However, it’s worth remembering that this strategy may still result in losses. Even seasoned traders may fail to predict market movements accurately.
Mirror trading enables novices to utilize advanced algorithms to replicate trading activities. It enables them to use complex models to assess the current situation. It also enables users to choose the most optimal trades, it requires complete outsourcing of trading activities. Users can choose only the assets they want to buy and the amount they are ready to spend. Then, they should wait until the algorithm replicates the source strategy.
While mirror trading is perfectly suitable for those who want to engage in market activities while minimizing their risk exposure, CT is the right choice for businesses and individuals who need to maintain some degree of control over their financial operations. The choice between these approaches depends on a person’s experience and the amount of spare funds they have.
