I want to copy the strategies of other investors. What do I need to know?

To trade on the stock market, an investor does not have to assemble a portfolio and develop his own strategy himself — it is quite possible to simply copy others. But there are traps waiting for the investor along the way

It is not easy to choose securities for an investment portfolio. This is especially difficult for a novice investor who does not have extensive knowledge and sufficient experience for independent trading. It is even more difficult to manage a portfolio, and here you can try the copy paste method.

Repeating the actions of successful investors is a strategy in which there is nothing shameful. This is done not only by beginners and lazy traders, but also by many professional players.

For example, many investors study the composition of mutual funds, since information about them is publicly available, and invest in the same instruments that are presented in mutual fund portfolios. And even entire investment funds are trying to copy Warren Buffett’s strategy and moves.

What are the disadvantages of copying other people’s strategies?

A short and simple way does not always turn out to be optimal — this approach has several pitfalls. Firstly, there are difficulties with diversification. Institutional and just large private investors almost always have the most diversified portfolios with the best assets in a variety of industries.

Many small players may simply not have enough capital to copy the portfolio from which the example is taken, given the high value of some blue-chip stocks.

Copying only a part of the portfolio kills the whole idea of following the guru: the imitator’s portfolio remains unbalanced, and if the assets in which he invested fall in price, then there will be nothing to compensate for the fall due to the missing securities.

Also, most ordinary players lack tools and time. Institutional investors have a whole staff of experienced analysts who monitor the situation on the markets in all areas of interest almost around the clock. Therefore, they can react to any changes with lightning speed.

An ordinary investor, even an experienced and qualified one, does not have such opportunities. This means that in a situation where it will be necessary to react quickly and in a timely manner, copying the actions of a player taken as a standard, he simply will not have time to do it.

Is there any way to automate this process?

Yes – you can copy other people’s strategies both independently, studying portfolios and strategies of the most successful investors, and using auto consulting and auto research services.

Auto-consulting involves assistance in selecting securities and determining a strategy in accordance with the client’s preferences. When auto-consulting, an investor can control transactions and decide whether to follow a particular strategy.

Auto-investigation is a full-fledged automatic duplication of transactions by the system of a successful investor without the participation of the client. It works like this: managers who successfully trade according to their own strategy connect to the auto-tracking service. Users of the service evaluate the dynamics of his account and can become his subscribers by giving a percentage of their accounts.

The main advantage is that transactions are copied with minimal delay, which allows subscribers to receive approximately the same profitability as managers. This greatly simplifies the investment process in technical terms and saves time.

The decision on transactions can be made by both the manager himself and trading robots. You can choose a variety of strategies — for example, speculative or investment. In addition, you can develop your own strategy and charge traders who subscribe to it a commission for copying transactions.

This method helps beginners avoid mistakes and trade with less risk. It is also popular among lazy investors who do not want to spend time studying a lot of financial information and making difficult decisions.

Sounds great. But, probably, not everything is so simple?

Yes – auto-investigation has its disadvantages. Even the most successful managers may one day miscalculate and suffer big losses, and all their subscribers will suffer losses after them. It is important to remember that both the profit and all capital losses of those copying the strategy will be approximately proportional to the profit and losses of the manager. And yes, the commission for the service is usually removed in case of losses.

There is also a risk of slippage: sometimes there is not enough supply on the market for everyone, and then the purchase of assets by subscribers takes place at a higher price than that of the manager. In addition, the commission on transactions of an ordinary investor may be much higher than that of a manager, which will worsen profitability – especially if his strategy involves short-term trading with a large number of transactions.

In this case, there may even be situations in which the manager came out on the plus side at the end of the day, and his followers remained in the deep minus due to transaction costs.