At SignalDP, one of the most common questions we’re asked by traders is whether they should copy trade or follow trading signals. So, we thought we’d share our insights in a full article, covering everything you need to know to help you decide which option is best for your lifestyle and ambitions.
If you’re considering becoming an expert on a copy trading platform, or if you’re currently offering signals via a messaging platform like Telegram, then these insights will provide a useful overview of the differences between copy trading and trading signals.
We’ll explain the similarities and differences, and we’ll explore which approach might suit certain situations.
What is copy trading?
Copy trading is where followers automatically copy the trades of successful traders. Trades are automatically executed in the follower’s account. This can be an effective way for people to diversify their portfolios and gain exposure to a wider range of markets and trading strategies. It might also help followers improve their trading performance by learning from the successes of more experienced traders.
What are trading signals?
Trading signals are snippets of analysis that traders receive to inform them of good trading opportunities. These signals can be generated by humans, or by automated trading systems. They can be based on technical analysis, fundamental analysis, or a combination of both.
Trading signals can be used to identify potential trade setups that meet certain criteria, such as an attractive risk-to-reward ratio, or a breakout from a key level of support or resistance. Some trading signals are provided for free, while others are offered as part of a paid subscription service.
Copy trading and trading signals are two different approaches to trading that can be used separately or in combination.
The similarities between the two approaches
Access to expertise – Both copy trading and signals trading enables followers to benefit from the expertise of experienced traders.
Diversification – Both approaches allow traders to potentially diversify their portfolio and gain exposure to a wider range of markets and trading strategies. Over the last 5 years, copy trading has become very popular. And in recent years, the number of trading signals providers has increased exponentially (we estimate there to be thousands). Both approaches enable followers to gain exposure to different trading strategies and analysis techniques that you otherwise wouldn’t have access to yourself.
Time-saving – Either approach can save traders time, as trade setups are usually provided. Copy trading doesn’t need any manual intervention, and followers don’t need to constantly monitor the markets 24/7. With signal trading, analysis is typically already provided, so followers can spend more time focusing on other aspects of the trade.
The differences between both approaches
Here’s a snapshot of how copy trading and signal trading differ:
|Copy trading||Trading signals|
|Trader discretion on trade execution||No||Yes|
|Discretion on money management technique||No||Yes|
Automatic trade execution
When it comes to trade execution, there’s a trade-off between ease of use and retaining discretion over an account. With copy trading, the trade execution is automatic. Whereas with signal trading, the follower must action the order on their own account. This makes copy trading easier, because the follower can set it up and trades are automatically placed in their name on their account.
With signals, the follower receives the information about a setup but must place the trade themselves on their own account, including what amount to stake. At SignalDP, our platform has a feature called Signal Link, which allows followers to click through from a signal to a pre-filled order ticket with a broker. Not only does this save followers time and removes transposition errors, but it also gives them the discretion of whether or not they want to place the trade in the first place.
However, with discretion comes emotion. With copy trading, the emotional element is completely removed. Whereas with signal trading, it isn’t.
To copy an expert, the follower must be on the same platform, and they normally need to have the same broker. This also means that they must commit to paying the spreads and charges of that broker, which in some cases may be pricey.
With signals trading, it’s the followers’ choice as to the broker they use. This is because the signal is simply a snippet of information communicated through a messaging platform like WhatsApp or Telegram. Consequently, the cost of trading doesn’t have to be excessive if trading with a fair broker.
Cost of trading aside, the upside to copy trading is that you have access to a range of experts all in one place. Whereas finding good signal providers can be difficult because they aren’t all on the same platform, they are disparate and the follower needs to find them.
With copy trading, followers normally allocate a pot of funds, and the expert trades using their money management rules. With signal trading, a follower is able to choose their own money management rules – a key area of differentiation for a trader.
With copy trading, followers tend not to see the analysis that goes into a trade setup, it tends to be a ‘black box’ type experience.
With signal trading, you normally do see the analysis, but not always.
If the follower wants to grow, and eventually perform the analysis themselves, then following trading signals would be more beneficial.
Being on the same platform allows followers to view the exper’s performance history, which helps the follower make more informed decisions. Be careful though, some platforms only provide summaries of performance, which are not that useful (anyone can place a trade and win once, the question is can you place 1,000 and still win overall).
With trading signals, followers normally rely on the reporting of the provider. Marking your own homework isn’t that transparent, and tends to come with a big lump of scepticism. However, SignalDP’s, reporting URL feature is starting to change this for signal providers by providing them with their full performance history to use in their business, as they see fit.
Copy trading, or trading signals: which is right for me?
Both trading strategies have their pros and cons, and the one that’s best for the follower, is ultimately a personal decision. In some cases, they might find that a combination of both strategies is the best option.
The pros of being an expert copy trader:
- Potential access to a large audience, immediately
- Your followers will not have discretion, so they will follow your trades automatically
- You can showcase your performance on the platform
The cons of being a copy trader:
- You’re competing against a huge pool of other experts, and your performance will be compared to everyone else
- You’re locked into a platform and a broker
- The platform tends to make the money, not the expert. The huge spreads charged to followers go to the broker, and very little is shared with the expert
- The client belongs to the platform/broker and not to your business, so you can be cut out in a heartbeat and lose all your audience
The pros of being a signal provider:
- You can build a genuine business by being the channel owner in Telegram and engaging with your audience
- You can choose your own business model, choose how to monetise your offering and manage your broker referrals
- If successful, you can earn a significant amount of money as limits won’t be imposed on your return
The cons of being a signal provider:
- You’ll have to really work hard to build and sustain your business
- You’ll have to manage all aspects of running a business, including marketing, admin, and compliance
Although copy trading can provide an enticing shortcut for followers, signal followers are also taking advantage of shortcuts. The difference is that signal followers retain control over their money and have discretion over each trade that gets placed.
With signals, the shortcut isn’t in the execution, but in the analysis. For those considering offering signals, our advice is to provide as much analysis insight as possible. Take your followers on a journey and help them become better traders.
If you provide consistent, high-quality analysis that’s sought-after by followers, and you’re committed to running a business, then the signal provision is probably your best option.
If you provide signals or are an expert trader then sign up with SignalDP, and start building a signals business to be proud of.