Copy Cat Trading for New Traders

Copy cat trading as the name suggests mainly refers to the act of copying the trade entries of the people who are known to have more experience, knowledge and hold on the market. Often novice traders who don’t have any or minimal knowledge about the Forex trading or the people who are not so confident about their judgement but still want to try their luck in various indices go for Copy Cat trading technique. Like all the other trading techniques and speculations Copy Cat trading has its own pros and cons. In this content we have tried to put light on various dimensions of this means of trading.

Are all the Copy Cat trades a good bet?

It can be one of the most critical question for anyone who decides to be a Copy Cat Trader. Warren Buffet has made people earn small or big fortunes with his to the point trade tips and investment ideas. Many people have changed their fate over night just by keeping a track of various holding in Warren Buffet’s portfolio.

But what about fund manager Bill Miller? After giving profitable tips for 15 years in a row he was a disaster for constant 5 years. If his obedient Copy Cats have followed him after 2006 they must have faced a major loss and may have lost everything they have earned till then. There is no surety in share market that the fund manager who gave a good deal will repeat the performance for time and again. You have to be cautious and very speculative in your approach and decide for yourself what is best for you.

Web of Copy Cat trading!

Copy Cat trading is not limited to simple copying the investments of the star fund managers or investors. It has become a widespread procedure and convenient procedure for many. Internet has not only given birth to the entire concept of Copy Cat trading but it also has given boost to various aspects by which one can easily track and copy the holdings of all those people who have been earning fortunes by their investments.

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Websites like GuruFocus displays the holdings of such investors for you to speculate, decide and the copy their investment and try your luck in share market. On the other hand web service like Covestor has brought up the concept of mirror investment. In this they link your account to high profile investment account and you will get the exact mirror image of their various investments and holdings. You will be able to track each and every move in their portfolio and make your investment decisions accordingly.

Should You Copy At All?

This is again a big question that whether you should copy all the big investors or is there any criterion about who should be copied by you. The people who can be copied can be mainly segregated in three categories.

· Money managers: Money managers with qualifying assets greater than 100 million dollars have to file a return. These return documents can give you lot of information and material for copying.

· People who are investors not traders: Big investors who buy the stock and hold it from the point of view of investment rather than short term holdings for trade purpose are much more trust worthy and can be copied for investment ideas.

· Activist Investors: These are the kind of investors which can make a stock price rise just by the news of their involvement in the stock or the company. They can easily give their positive views about a stock through blogs, twitter etc.

Are there any Risks?

Like any other form of trading, Copy Cat trading has its own share of risks. Some of the risk factors have been discussed below:

· No guarantee for success: It is an obvious fact that there is no guarantee of success in Copy Cat trading. Any fund manager who has consistently made the clients earn by their investment moves can prove to be a disaster and make them loose everything earned in just single trade entry.

· Boom of the stock is over: It can also happen that the boom time of the stock which would have earned you huge profit is over and you are late in copying the investment tip. Despite of following a star fund manager you can lose money due to bad timing.

· Difference in your and money manager’s perspective: It is one of the most crucial risks involved in Copy Cat trading. If you and the money manager who is being copied do not have same trade expectation then copying such trade entry can make you lose your investment. For example you have a short term goal and money manager has made a long term investment then you may not get the desired results.

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