Binary options are one of the fastest ways to make money in the financial markets. Successful trading requires knowledge and skills that, in turn, can be acquired by months of practice. However, copy trading changes everything. With this feature, even those who have just learnt what binary options are or simply don’t have enough time for trading can start making money. In this article, you will delve into copy trading and why this option has become very popular among binary options traders.

Copy Trading Basics

Copy trading is an automated replication system. It allows the investor or the follower to mirror trades that come from the trader or the leader. After the trader selects an asset, chooses the direction, picks an expiry time, and executes a trade, this exact trade is executed on the follower side. To make it even clearer, let’s make an example.

A trader chooses EUR/USD and decides that the pair will move higher within one minute. They decide to buy a Higher contract with a 1-minute expiry. Once the trade is executed, it is mirrored on the follower account, which means that the same trade is executed on the follower’s side as well.

Now that it is clear how it works, let’s see how the investment amount is established. There are two main ways for trade amount calculations. The first is on the follower’s side, and the second is defined automatically. Let’s have a closer look at each one:

• Investment amount is defined by the follower. You control the whole money management process. You can set up the percentage or exact amount that will be used in each trade, and when your trade is mirrored, only this amount will be set.
• Proportional calculation. In this case, the sum of each trade is defined by a proportion of the whole balance on the leader trader’s account. For instance, if the master trader has $1,000 on their balance and places a $100 trade, this makes 10% of their total balance. If the follower’s balance is $100, for instance, then 10% is taken in the trade, which means that $10 will be invested.

The Key Participants and Their Benefits

Copy trading is an ecosystem that comprises three sides: master trader or leader, follower or investor, and the trading platform. Each part has its own benefits, and you will see them by reading further.

The Master Trader

The one who places trades. These are experienced market participants who use various strategies to profit from price fluctuations. Master traders possess knowledge in technical analysis and normally have a variety of strategies to react to various market situations. Many have years of practical trading experience and expertise in money management and trading psychology. Master traders provide:

• Expertise. They offer their analytical skills and knowledge of financial markets.
• Consistency. Unlike beginner traders, leaders execute trades according to their strategies and stick to their trading plans.
• Transparency. Followers will see their entire trading history after master traders join the copy trading program. 

The benefits of providing copy trading services by a trader include:

• Fees. Master traders earn a percentage, which is typically between 5% and 50% of profits that they generate for their followers. This allows leaders to get additional income steam and grow their balances even faster.
• Professional reputation. A strong track record may open new doors to traders beyond copy trading.
• Scalability. Master traders can attract an unlimited number of followers without increasing their personal risk exposure.
• Discipline reinforcement. When trading with their own money and invested funds, traders are encouraged to stick to their strategies.

The Follower

The follower is one who invests money in master traders. Normally, they have limited knowledge or time for trading. Moreover, followers can even be those with knowledge but having problems with emotional control. They know where to enter in theory, but fail in real trading. The key benefits of copy trading for followers include:

• Access to knowledge. Followers benefit from professional-grade expertise without spending months and years on learning about trading.
• Automation. The system operates autonomously, which means that you don’t need to focus on what is going on the screen. 
• Emotional detachment. Followers are not driven by any emotions during trading, such as greed or fear, and these feelings have no impact on their decisions. 
• Passive income. Followers do not open trades on their own. Therefore, they can use copy trading as a passive source of income. 
• Diversification. Those who know how to trade and even trade on their own can diversify their routine by investing in various strategies. 

The Platform

The third participant is the trading platform, which provides access to both master traders and followers to the copy trading services. The platform provides technology and all related data, including trade histories, statistics, performance, and account management for both sides. By joining a brokerage with copy trading services, traders can have larger exposure, while followers will receive deep stats allowing them to choose the right master trader or even several ones.

Simple Copy Trading Strategies in Binary Options

In binary options, copy trading is simplified as there are no stop losses. Your results depend entirely on how you distribute funds among leaders. Followers can invest randomly in those who perform better, but there are some proven strategies for choosing master traders that will help you improve your results.

Investing in a Single Trader

This is the most straightforward approach. You select the single top-performing trader based on their long-term track record and allocate all the funds that you decided to invest in copy trading to this trader. This approach is frequently used by novice followers who do not want to spend much time on analyzing performance and other parameters. 

The strategy seems perfect at first glance as you choose the best and you expect them to grow your balance. However, you should never forget that there are no perfect strategies in trading at all. Therefore, at some point, even the best traders may give a short series of bad trades. 

The profit potential of this strategy is the highest if you choose a genial trader with perfect trading skills. However, it also carries the obvious risk of total dependence on a single individual’s performance. Therefore, you can pay attention to the second strategy that is described below.

Spreading Funds Between Three Traders

This method adds diversification without overcomplicating your routine. You divide your funds into three equal parts and invest in three master traders, and you choose them in the following way:

• The first trader should use conservative strategies. They never invest much of their balance into trades and apply only conservative trading strategies, waiting for movement confirmation and signal confluence. While the number of trades will be lower, you can be pretty much sure that such conservative strategies will perform better over time. However, on the downside, the number of trades is limited; therefore, you shouldn’t expect great results quickly.
• The second trader should use medium-risk strategies with higher amounts involved in each trade. You will see that their performance is higher for the same period compared to the conservative one. Here, you can expect better results, but risks are also higher. Such traders use more aggressive strategies; they often do not wait for confluence, which may provide more profitable signals, but also a number of losses. 
• The third trader uses the most aggressive strategies. You will see a sharp performance curve in their dashboard, which means that funds increase drastically over a short period of time. However, with this great short-term performance comes greater risks. However, if you use this strategy, risks from the third trader are offset by conservative and less aggressive master traders.

This approach protects you from a total failure because even if one trader experiences a series of losses, two others will allow you to keep your account stable.

The Eighty-Twenty Rule Strategy

This strategy combines safety and an aggressive approach. Followers still choose at least two master traders, but they allocate funds in unequal proportion. This time, investors give 80% to conservative traders and only 20% to aggressive ones. This is a defensive strategy allowing you to avoid failure. The important rule is never to give fresh capital to aggressive traders in a losing streak; you just watch them trading or even take your funds from them and find other aggressive leaders. Another important rule is to never invest in one aggressive trader for too long. Once you collect profit, you should unfollow such traders and look for other aggressive leaders. Remember that aggressive strategies bring more profits over a short period of time, but they also generate more losses.

The Ten Percent Rule

Whether you are trading on your own or investing money in leaders, you should never forget the golden 10% rule. Do not risk more than 10% of your balance per trade. When you are using copy trading services allowing you to choose the amount per trade, just set this rule. If there is no way to set the amount per trade on your own, select traders who put about 10% in trade, as the same allocation will be mirrored on your balance.

Conclusion

Copy trading has become popular as it offers benefits for both traders and followers. It provides a bridge between the two sides, connecting those who have knowledge and experience with those who want to start making money but have no skills or time. The system is built on transparency and alignment of incentives. While it may seem the perfect solution, copy trading is not fully a source of passive income as you will have to check traders from time to time and rebuild your investment portfolio according to leaders’ performance. 

FAQ

What exactly is copy trading in binary options?

Copy trading in binary options is an automated system that allows a follower to replicate the trades of a master trader in real time. Unlike signal systems that work without copy trading platforms, those who participate in copy trading can rely on minimum latency. 

How is the trade size determined for the follower?

The trade size is calculated proportionally in most cases. This means that if the master trader risks only 5% of their total balance, then a mirrored trade will also be 5% of the follower’s balance. However, in some systems, followers can set a strict amount or percentage per trade.

What happens if the master trader is offline or not trading?

If a master trader does not place trades, then there will be no mirroring. Moreover, followers will not pay fees as commissions are deducted only for trades executed on the leader’s side.

Can I copy multiple master traders at the same time?

Yes, and this is one of the key advantages of copy trading. You are not tied to a single trader. You can allocate your funds in various proportions among different leaders and benefit from their performance.

How fast are trades copied?

Modern trading platforms allow signal transmission with minimal latency. Therefore, you can expect trade execution in under 100 milliseconds, which ensures that followers enter at the same prices. 

Do followers have to match the master trader’s expiry times?

It depends on the settings of the platform. In some cases, expiries are copied together with the trade. In other cases, you may set your own expiries when copying a specific leader.

How do master traders earn money?

Leaders earn a performance fee, which typically ranges from 10% to 50%. This commission is deducted automatically when the trade closes.