How do I set up copy trading in Australia?
Copy trading is an automated service that allows you to copy the trades of other successful traders. It is a prevalent feature within stockbroking companies, with some international brokers offering up to 100 different traders.
So, how do I set it up in Australia?
Here are some steps to take:
It’s important to remember that no two investors will have the same risk appetite or goals for their investments. For this reason, it can be helpful if you get your strategies together before looking at others’ strategies. That way, when you find a copy trader whose approach closely matches your own, it’s more likely to work well with yours.
As many people are familiar with trading shares, this step deals exclusively with them. If you’re interested in finding a copy trade for CFDs or other products, skip to Step 2.
Open a live account
Open a live account with a stockbroking company that provides shared services to its clients—there are many. Other types of brokers offer similar services, although they may require the transfer of shares from one party to another before you can start using them. You should be aware that fees and conditions may differ if you use another type of broker for this service.
Ensure share transfers are allowed
Ensure your broker allows share transfers into and out of your account; not all do, and there is often an additional fee associated with it. Some brokers allow only inbound transfers, while others allow outbound ones, too: you’ll need both for this process.
Find a trader whose portfolio you’re interested in following
You can find these traders by searching private investors’ portfolios, as well as those managed by algorithmic trading companies and managed funds (mutual or hedge). Some brokers also allow you to narrow your search results down to those who only use the copy trading feature, those that use it alongside other services, or those who don’t use it at all. Note: if a profile lists a large amount of stock under ‘holdings’, be aware they may have very different goals from yours – for example, experienced investors may hold onto stocks for months or years rather than days.
Choose a strategy to emulate
Once you’ve sifted through the list of traders available on your broker’s website, you’ll be able to choose one whose strategy you want to emulate. Copy-trading works because it takes advantage of the Efficient Market Hypothesis, which says shares are priced according to their actual value. The theory is that if an investor can buy low and sell high, they’re making a good return on their investment without any extra effort required.
Contact the account holder
Once you’ve identified who you wish to copy trade with, contact whoever’s running the account directly through your broker’s messaging service or email them at their registered address (if these are available). You should discuss what type of trading activities they carry out (e.g. market order only), how often they like to make trades (e.g. weekly), and what times they usually trade (e.g. starting 7:30 am AEST).
As you can see from Step 6, not all copy trading is automatic. Some traders may want to know what time of day and how often you’d like your account to be traded, while others do everything automatically based on their pre-defined strategies. It would be best if you discussed these preferences with the other party before deciding on whether to sign up with them or not.
Set details with your broker
Now that you’ve found a trader you’re happy trading with, it’s time to go back to your broker and set up the details for this new relationship. If there are any specific instructions or documents they need from you, make sure you get those across as soon as possible. Once everything’s submitted, you’re ready to go live!
Once you’ve set up your account, be sure to check out how to stay in the forex market for a long time.