Copy trading explained simply

Copy trading is an innovative way to adopt the strategies of experienced traders and benefit from their expertise. Without needing much experience or time for market analysis, you can take part in various markets by copying their trading decisions.

Whether it's stocks, cryptocurrencies or CFDs, copy trading makes access to different asset classes easy and attractive for beginners. We’ll explain what copy trading is, how it works, the opportunities and risks involved and whether this method aligns with your investment goals.

• Copy trading is a method where investors automatically copy the trading strategies of experienced traders to participate in markets like stocks, cryptocurrencies or CFDs

• On platforms, you select a trader whose decisions are replicated in real time on your account, without the need for active trading on your part

• Copy trading makes it easier for beginners to access markets but carries risks such as market volatility, dependence on the copied trader and platform fees

• Platforms often charge fees, and profits from copy trading are usually subject to tax – make sure you're aware of the legal requirements

Definition – what is copy trading?

By definition, copy trading is a method where investors automatically copy the trading strategies of experienced traders. This means the decisions of a selected trader – such as buying or selling stocks, cryptocurrencies or CFDs – are mirrored in real time on your own account.

This form of trading makes it particularly easy for beginners to participate in the market without needing in-depth knowledge or developing their own strategies. At the same time, experienced investors with limited time can benefit from the expertise of others. Copy trading is widely used in both traditional financial markets and the cryptocurrency sector, offering access to different asset classes depending on the broker and platform chosen.

The key advantage: investors can base their decisions on the strategies of successful traders and benefit from their performance. However, there are also risks that should be considered when engaging in copy trading.

How does copy trading work?

With copy trading, investors select a platform and an experienced trader whose trading strategies they wish to copy. The platform automatically synchronises the chosen trader’s trading decisions with their own account, ensuring all buys and sells are replicated in real time within their portfolio.

This process is powered by specialised software that allows investors to analyse different traders' performance and strategies. Investors decide how much money they want to invest and can often set parameters such as a loss limit or a maximum investment amount. Once connected, all actions taken by the copied trader are executed automatically, requiring no further manual intervention.

Where can you do copy trading?

A wide range of platforms specialising in different markets offer copy trading. Some platforms work directly with regulated brokers, focusing on traditional asset classes like stocks and CFDs, while others specifically support copy trading with crypto coins and tokens.

Many crypto exchanges have also integrated copy trading options into their services, allowing investors to benefit from the volatility of crypto markets. However, choosing a platform should be done carefully, as factors like fees, regulation, available markets and user experience can significantly impact your copy trading experience.

Risks and opportunities of copy trading

Copy trading provides investors with an easy way to benefit from the expertise of skilled traders, but it also comes with risks. These risks should be carefully weighed against the potential benefits before making an investment.

Opportunities of copy trading:

• Time-saving – investors don’t need to develop their own trading strategies or analyse the market, as they copy other traders’ decisions

• Easy access – particularly for beginners, copy trading offers a way to participate in markets without extensive technical knowledge

• Diversification – different asset classes like stocks, cryptocurrencies and CFDs can be easily integrated into a portfolio or multiple portfolios

• Potential returns – successful traders can generate high profits, which are directly reflected in the investor’s account when copied

Risks of copy trading:

• Dependence on the trader – your performance is directly linked to the copied trader’s success, meaning their losses will impact your portfolio

• Market volatility – especially in cryptocurrency trading, high fluctuations can lead to rapid losses

• Platform fees – many providers charge fees for copy trading, which can reduce overall returns

• Lack of control – investors give up some control over their investments, as all trading decisions are copied automatically

Differences between copy trading, social trading and mirror trading

Although the terms copy trading, social trading and mirror trading are often used interchangeably, there are clear differences:

• Copy trading – the trades of an experienced trader are copied directly and automatically, allowing investors to benefit from their decisions without actively trading themselves

• Social trading – the focus is on interaction between traders, where investors can discuss strategies and market insights before making their own trades

• Mirror trading – complete trading strategies of a trader or an algorithmic system are replicated, without copying individual decisions in detail

While copy trading is particularly appealing to beginners due to its low effort requirement, social trading offers more flexibility for personal decision-making. Mirror trading, on the other hand, often requires technical understanding, as algorithms play a central role.

Can you make money with copy trading?

Yes, it is possible to make money with copy trading, but success depends on several factors. The key aspects are choosing the right trader, market conditions and good risk management. Experienced traders with a proven track record of stable performance can help generate potential profits.

The level of returns varies significantly and is highly dependent on the performance of the copied trader. However, there is no guarantee of profit. Losses can occur just as easily, especially in volatile markets like cryptocurrencies. Additionally, platform fees or performance-based fees charged by traders can impact overall returns.

To improve the chances of success, investors should not only analyse a trader’s past performance but also assess their strategies and risk management approach. Diversification – copying multiple traders with different strategies – can help mitigate risks. Despite the potential opportunities, copy trading remains a high-risk investment that requires careful planning.

Is copy trading legitimate and legal?

Yes, copy trading is legitimate and legal – provided you use a regulated platform or broker. However, its legality depends on the financial regulations in your country, particularly in the cryptocurrency sector, where rules are often less standardised.

Make sure to choose a platform regulated by a recognised financial authority, such as BaFin (Federal Financial Supervisory Authority) in Germany. Regulated providers generally offer greater security and transparency. Also, familiarise yourself with the fees and risks involved to avoid any unexpected surprises.

This is especially important when dealing with cryptocurrencies, as not all platforms are properly regulated. Only select providers that demonstrate clear regulatory compliance and have strong security measures in place. It’s always advisable to check the legal framework in your country and seek expert advice if you’re unsure. This way, you can ensure that you’re trading in a secure and legally compliant environment.

 What does copy trading cost?

Copy trading usually comes with costs, which depend on the platform and the traders you copy. The most common fees include:

Platform fees
Many providers charge a basic fee or a fee per trade. These cover the use of copy trading tools and platform infrastructure.

Performance fees
Some platforms charge a percentage of the profits made by the copied trader.

Spreads
When trading CFDs or other financial instruments, additional costs may arise in the form of spreads (the difference between the buy and sell price).

Deposit and withdrawal fees
Some platforms charge fees for deposits or withdrawals from your account.

The exact costs vary significantly between providers. You should compare platform fee structures in advance, as they can have a major impact on your actual returns from copy trading. Transparency is an important factor when choosing the right platform.

Taxes on copy trading

Profits from copy trading are generally subject to the same tax regulations as other capital gains. This means you may have to pay capital gains tax, income tax or similar levies, depending on your country.

In Germany, profits from copy trading – such as those from crypto coins or tokens – are subject to capital gains tax. As of 2025, the tax-free allowance for capital gains is €1,000 per year. Married couples and civil partners have a combined allowance of €2,000 per year. Any gains above this threshold are taxable and must be declared in your tax return.

Important: Losses from copy trading can, in most cases, be offset against profits to reduce your tax burden. It is essential to keep accurate records of all transactions.

Since tax regulations vary by country, you should check the applicable rules in your region and consult a tax advisor if necessary. This ensures you meet all tax obligations correctly.

Conclusion – is copy trading worth it?

Whether copy trading is worthwhile depends on your individual goals, risk tolerance and choice of traders. For beginners, it can be an easy way to gain initial trading experience and benefit from the expertise of skilled traders. It is also an attractive option for investors who have little time for their own market analysis but still want to participate in markets such as stocks, cryptocurrencies or CFDs.

However, there is no guarantee of profit. Dependence on the performance of the copied trader, market volatility and platform fees can increase the risks. Careful selection of both the platform and traders, along with good risk management, is crucial for long-term success.

Copy trading can be a valuable addition to your portfolio, but it is not a risk-free strategy. Think carefully about how much money you want to invest and diversify your investments to minimise potential losses. Simply put, copy trading can be worthwhile for many investors when used as part of a well-thought-out investment strategy.

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