Forex trading and trending ‘copy’ strategy

It is said that the forex markets are the domain of experienced traders, and it is certainly true that trading has become increasingly more fast-paced as new financial instruments and underlying assets become available. Advances in technology are also contributing to the creation of new ways to trade and leading the way are the increasingly popular copy trading platforms.

For new traders, the sheer range of choice and constant changes in the markets can be intimidating, so copy trading can be an attractive option. The concept behind copy trading is very straightforward- essentially experienced strategy managers share their trades with their followers, who can then choose to copy their strategies.

This brings benefits to both parties; investors have a better opportunity of making successful trades by following an expert in the markets, and managers make commissions on their portfolio of followers.

This type of trading appeals to the modern trader’s desire to share their success and trading experiences, as potential investors have full access to a manager’s performance statistics and the desire of novice traders to gain access to forex trading without having the technical background.

So, why isn’t a copy-trading system used by everyone, everywhere? This was the question raised during the research and development stage for FXTM Invest, and we concluded that there were certain areas, which existing copy trading platforms could be improved upon, and could make copy trading more inviting.

Firstly, there were few easy-to-use, transparent and reliable platforms to carry out copy trading effectively. The available systems were often either too complicated or too primitive.

Secondly, not many of these programs had simple tools to ‘match’ the risk profiles of the strategy managers versus their followers, meaning that conservative investors might accidentally choose to copy the trades of a manager who had a high risk tolerance.

Finally, the issue of slippage remained a constant issue within copy trading programs, especially during periods of volatility. It was clear that those were the demands FXTM Invest had to meet, and it was only after addressing them that we saw the potential of it becoming this much-needed and extremely popular tool. The reality is that the markets are risky, so managing to provide traders with more reliable tools to manage this risk, is rewarding to both them and us.

After we launched FXTM Invest, we were excited about how fast novice traders adopted it. We also noticed that the program was particularly popular amongst certain types of traders, for example in Asia 28 per cent of those signed up to FXTM Invest are male and under the age of 35, and in Africa it is 22 per cent for the same demographic. Our Nigerian clients in particular, have been attracted to join the programme, both as strategy managers and investors.

The key reasons behind FXTM Invest’s success are its easy-to-use interface and that both strategy managers and investors are guaranteed the same execution price and full transparency on the risk-management side. Each strategy manager is assigned a risk level from conservative to aggressive, so it’s easy for investors to spot which manager matches their risk tolerance.

Investors are also able to limit their risk using safety mode. This feature works by setting an investment coefficient, so for example if the coefficient is set at 0.5 and the strategy manager invests $100, the investor will only trade $50.

Furthermore, each strategy manager’s current profit performance and commission level is always displayed giving investors extra assurance in their choice of strategy managers.

Experienced traders who wish to become strategy managers, now have the opportunity to not only enhance their expertise, but to also multiply the gains on their successful trades while sharing their know-how with new investors.

A fully transparent ranking system, measured in manager profitability, gives the strategy managers the opportunity to increase their follower popularity, as the higher they rise the more their strategies will be viewed by investors.

Investors, on the other hand, can gain access to market opportunities through the strategies they choose to follow as they diversify and expand their trading portfolio.

FXTM Invest’s approach to copy trading has proved its value to traders and strategy managers. In my opinion, the increased transparency of each investor’s risk management and potential return on investment means that forex copy trading is a trend set to last.
• Ahmad is the Vice-President of Corporate Development and Market Research at FXTM