Many people think that Copy Trading and Mirror Trading are the same things. In fact, there is a big difference between the two. Even though the trader participants both have a record board.
Mirror Trading has existed since the early 2000s as a result of the evolution of Algorithmic Trading (Algo Trading). Previously, the Mirror Trading strategy was only available to institutional class traders. But then, it can also be accessed by retail traders. It is automatic so that trading decisions are not emotionally based. According to Investopedia, Mirror Trading has become a more acceptable alternative for traders to consider as information and transparency tools have increased in quality
Mirror Trading users use the platform provided by the broker to check the history and details of various trading strategies. Then, you can choose one of the strategies available to apply in their account. When you execute a transaction, the trading position created will be automatically copied in the Mirror Trading follower’s account.
On the other hand, Copy Trading is one of the new technologies. You can apply it in the context of Social Trading and emerge following Mirror Trading. Copy Trading and Mirror Trading allow forex traders to automatically copy trading positions that are opened and managed by other traders. However, the fund control settings are different. Copy Trading means that money management for follower trader funds will be linked to pro trader funds. On the other hand, Mirror Trading merely imitates strategy.
Similarities and Differences in Copy Trading and Mirror Trading
In Mirror Trading, you can decide the lot size in each trading position by yourself. You can decide it as well as how many trading positions in the Follower account will emulate the Signal Provider. That’s different from Copy Trading, where the Follower Trader should allocate part of its capital to the Signal Provider. Additionally, the Signal Provider should be in the form of a percentage of the net balance.
For example, you have a deposit of $ 10,000 in your Copy Trading account. Then, you decide to allocate 20% to Signal Provider X, and 30% to Signal Provider Y. With this setting, if Provider X trades with $ 20,000 in their accounts, while Provider Y only trades with $ 2,000. Thus, the impersonation of trading on your account will be proportional to the amount, which is $ 2,000 and $ 600 respectively.
However, Copy Trading and Mirror Trading also have in common, that is the performance of Signal Provider in the past cannot be an indication of profit-sharing in the future. If you monitor the trading performance of leading figures on the Social Trading platform, you will see that their trading results are generally very volatile.
Someone who can make spectacular profits last month, next week could have experienced an extreme drawdown. Someone who stands at the top of number one this week can slump to number three next week. Then, he has disappeared somewhere when entering next month. Under these conditions, the most complex problem for the Follower Trader is how to recognize when it is best to start following a Signal Provider, and when to break up with it.
