Mirror Trading

What Is Mirror Trading?

Mirror trading is a methodology of trade selection utilized principally in forex markets. A strategy allows investors to copy the trades of experienced and effective forex investors and carry out similar trades, in practically real time, in their own accounts. Mirror trading was initially simply accessible to institutional clients however has since been made accessible to retail investors through different means. Since its beginning in the mid-to late-2000s, mirror trading has enlivened other comparative strategies, for example, copy trading and social trading.

Understanding Mirror Trading

Its automated nature can help forestall investors from settling on feeling based trading choices. Mirror traders in the forex markets will frequently utilize a brokerage's trading platform (software like MetaTrader form 4 or 5) to look at the chronicles and subtleties of different trading strategies. In the stock market, they might utilize broker services, for example, Interactive Broker's Interactive Advisors or an outsider site, for example, collective2.com for instance.

Subsequent to exploring performance attributes, the trader then, at that point, picks an algorithmic trading strategy from the accessible options in light of their investment objectives, risk tolerance, investment capital, and wanted assets to invest in. For instance, on the off chance that a trader has a negligible risk tolerance, they might decide to mirror a strategy that has a low maximum drawdown. At the point when strategy engineers execute their trades, these trades are copied in mirror traders' accounts utilizing automated software that works 24/5 determined to imitate comparable outcomes. Conspicuous forex brokers that offer mirror trading incorporate AvaTrade, FXCM, and Dukascopy.

Benefits of Mirror Trading

Decreases Emotions: Because mirror trading decides when a trade gets opened, closed or amended, it eliminates the stress of pursuing trading choices. This is especially useful for new investors who may initially find the forex market overpowering. Rather than agonizing over the market's everyday vacillations, an investor can essentially check the performance of their mirror trading account toward the finish of every week and decide whether they need to keep utilizing the strategy.

Confirmed Results: Forex brokers that offer mirror trading typically look at, test and approve the trading consequences of strategies they transfer to their platform that helps filter out losing trades. For example, before another strategy is accepted, a broker might expect it to have a year history of profitability with a specific maximum drawdown limit. While choosing a forex broker that offers mirror trading, investors ought to ask how a strategy's outcomes have been checked to guarantee it has gone through thorough testing.

Limitations of Mirror Trading

Power of Strategies: Some mirror trading strategies may just give great outcomes under certain market conditions. For instance, a strategy might perform well in trending markets however underperform in rangebound markets. Investors ought to test the consequences of a strategy in different market conditions to guarantee its heartiness.

Risk Assessment: Although it is direct to check whether a mirror trading account is generating a profit, it is in many cases more hard to figure out what risks were taken to create that gain. For instance, a strategy that has returned 300% throughout recent months might look great initially, yet further analysis of the strategy might uncover that to accomplish that outcome, the investor would have needed to get through a 80% drawdown on their capital.

Fraud in Mirror Trading

In 2017 Deutsche Bank was fined $630 Million dollars by US and British regulators for trades that were alluded to as "mirror trades." However, this reference isn't alluding to retail traders following more experienced traders, yet rather to a method for laundering money. Russian stocks were being bought through Deutsche Bank in Moscow (with rubles), and similar stocks were being sold to Deutsche Bank in London (for US dollars). This successfully made a money laundering pipeline that happened for a considerable length of time. This fraudulent activity ought not be mistaken for authentic mirror trading regardless of the misnomer in financial reporting.

Features

Mirror trading allows traders or investors to impersonate others by executing the very trades that others do in the trader's own account.
Mirror trading has turned into a more acceptable alternative for traders and investors to consider as data and transparency devices have increased in quality.
Mirror trading should be possible in both forex and stock markets, however it is significantly more common in forex trading.