Today, traders have access to advanced platforms where they can trade using the method that best suits their level of knowledge and trading goals. Traders can choose to do so manually, copy trade or use bots to automate their work.
Each approach fits a different trader profile, and while one can be effective for some, it may not be for others. Manual traders make their own decisions about when to enter and exit trades. They do so by evaluating market sentiment using technical analysis on market data, as well as fundamental analysis of various economic factors.
Manual trading requires traders to know the basics, while copy trading requires no trading knowledge. Algorithmic trading can be for advanced or novice traders
Copy investors copy strategies of more experienced traders. There are numerous strategies to copy, with different returns and risk profiles. Strategy providers charge fees and investors benefit from the strategy’s good performance. Conversely, automated trading is performed by computer algorithms that trade without human intervention and can be configured to trade any strategy and with varying risk management rules.
There is no definitive ‘best method’, as such: manual trading requires traders to know the basics, while copy trading requires no trading knowledge. Algorithmic trading can either be for advanced or novice traders depending on whether they build their own algorithms or not. World Finance spoke to Alex Katsaros, CEO at Fondex, about the company’s philosophy, which prioritises helping traders make informed decisions, regardless of which trading method they use.
How does copy trading work?
When the strategy provider enters a trade, the trading server executes the same trade for each one of the investors who are copying the provider’s strategy. As soon as the strategy provider closes the trade, the server closes the copied trade for each of the investors. This ensures that the investors copying the strategy get the same results as the strategy provider.
At , the copy trading functionality is integrated within our main platform, Fondex cTrader. To copy a strategy, an investor simply has to open an account, select one of the strategies, deposit the amount they wish to invest, then start copying.
What are the benefits of copy trading over manual trading?
Copy trading doesn’t require any knowledge of market analysis, and it is a good solution for beginners. The investor knows the performance, risk profile and drawdown of a strategy before choosing to copy it. More than one strategy can be copied, further limiting risk, as opposed to relying on just one strategy with manual trading.
Copy trading isn’t as time-consuming and does not require any chart-plotting or order windows. Naturally, copy trading is recommended to traders who don’t feel confident enough or don’t have the time to make their own trading decisions. It should be pointed out that copy and manual trading can be combined.
How does algorithmic trading work?
A trading algorithm is a set of rules that is applied to sets of live and historical data, in order to generate and execute trading decisions on when to enter and exit the market. For example, a trend trading strategy could be automated by using an algorithm that applies and compares moving average indicators with market data. Based on the results from these comparisons, the algorithm would calculate the order size and then enter and exit trades.
The possibilities are endless. Traders can create algorithms with varying degrees of complexity. They can automate only a part of their trading strategy so as to avoid monitoring a chart, or they can create complex algorithms that read multiple markets and time frames, use multiple indicators, and employ sophisticated risk management systems that even take into account calendar events and news.
What are the benefits of algorithmic trading?
Algorithmic trading removes the adverse effects of psychology and stress, making sure that trading decisions are taken based on the analysis of data and not the emotional state of the trader. It’s less time consuming because traders have to focus on the general strategy of their algorithms instead of monitoring every individual trade. Algorithms can trade 24 hours a day, thus identifying more opportunities than a human trader ever could.
The performance of an algorithm can be tested and refined before it’s enabled for live trading using processes called ‘backtesting’ and ‘optimisation’. The algorithm is applied to historical market data, before thousands of combinations of different parameters are applied to arrive at the optimal result.
What challenges do copy and algorithmic traders face at present?
The main challenge that copy traders face is choosing which strategy to copy. Profitability alone isn’t always a sufficient deciding factor, because strategy providers might not be able to reproduce their past performance if market conditions change drastically.
Similarly, in automated trading there are a large number of algorithms that traders can buy or get for free. For that reason, it may be challenging to identify the right one. In addition, since market conditions constantly change, a bot that works well today may not have the same effectiveness in the future. Traders must have the ability to evolve and optimise their robots by adjusting them to current market conditions. Lastly, traders that want to create their own algorithms may find the process challenging.
How can these challenges be overcome?
Investors who choose copy trading should pay attention to the strategy provider’s description and try to evaluate not only its performance, but also the risk management statistics, such as its equity dropdown.
Algorithmic traders should pick their robots carefully, avoiding questionable providers promising unrealistic returns. When acquiring robots, they can choose to invest some time understanding the strategy built into the trading algorithm of their robot, and whether it suits their risk profile. For traders who have no programming knowledge, it’s easy to find programmers on the internet who will write robots for a small fee.
What sets Fondex apart from others in the space?
At Fondex, we value advanced technology and offer our clients cTrader, an award-winning DMA trading platform that features sharp trade execution. Our clients can perform manual, copy and algorithmic trading on any device. We also offer a diverse range of markets with thousands of instruments, from forex to shares, indices, metals, energies and ETFs.
We value user experience, making it easy to open an account using only an email address. We also educate traders through our learning centre, offering daily technical analysis and actionable signals from reliable third-party vendors. We protect our clients by keeping their funds segregated from company funds, depositing them at top-tier banks. We are also proud of our in-platform chat service, where users can enjoy 24-hour support.
Could you tell us about Fondex cTrader Copy and Fondex cTrader Automate?
Fondex cTrader Copy is a copy trading functionality integrated within our trading platform, cTrader. Both beginners and experienced traders can use it, either by becoming signal providers that charge fees, or investors that copy their selected strategies. The trader is always in full control and can start or stop copying a strategy at any time.
Fondex cTrader Automate is an algorithmic trading platform built into cTrader where traders can create trading ‘cBots’ or custom indicators in the inbuilt code editor. cBots are plug-and-play, and traders can run and install them within minutes.
With cTrader Automate, we provide free access across all the data needed for robot development. Backtesting and optimisation functionality is included in the package to fine-tune algorithms before live trading begins. With cTrader Automate, traders can combine any indicator with any risk management rules, do intermarket analysis or multiple time frame trading – the possibilities are endless.
Do you think copy trading and algorithmic trading will overtake manual trading?
Algorithmic trading has already overtaken manual trading in major financial industries. For instance, it’s estimated that 90 percent of the volume in public equities is traded algorithmically. In the retail space, the differences between algorithmic and manual trading are not that staggering, the main reason being that retail traders didn’t have access to the expertise or technology that professional investors or funds did.
Today we offer platforms, fast execution engines and APIs that can be used easily, even by novice traders. We help them collaborate in networks like cTDN, where hundreds of community-created robots are provided for free. Copy trading, even though relatively new, is already preferred as an easy way to get into the market. There is a very good chance that algorithmic and copy trading will overtake manual trading in the years to come.
What are your company’s plans for the future?
We envision Fondex to be a leading investment firm, catering to the broadest possible spectrum of clients. We already are a multiasset brokerage offering thousands of markets that can be traded manually, algorithmically or via copy trading. We’re focusing on expanding to different regions, such as South America and Asia.
Our future plans include incorporating more financial products in order to cater to the needs of an even wider clientele. Ultimately, we aim for Fondex to emerge as the go-to financial firm for every retail, professional, or institutional investor.
We believe that our values of transparency, integrity, quality and innovative technology, combined with our excellent support, will continuously increase our customers’ satisfaction and provide them with an exceptional trading experience.