Mirror trading: What exactly is it?
Online trading has become popular in recent years, but not everyone who wants to practice it has enough time or training. Thanks to technological advances, there are new options to handle these inconveniences. How? With new forms of automated trading, such as copy trading, social trading and mirror trading. In this article I’m going to explain what the latter entails. Are you interested? Keep reading!
Table of Contents
What is mirror trading?
Whether you are interested in mirror forex trading, or any other market, mirror trading is a strategy that can be applied to most markets. Mirror trading is a type of automated trading that emerged in 2000, even before the other variants, such as copy trading and social trading. Its name gives us a clear clue of what mirror trading means, since it consists of replicating or reflecting the strategy of a certain trader.
In this case, this strategy is hosted on the server of the company that offers the trading services - the broker - which, in turn, makes it available to its clients through its platform.
The trader who wants to replicate strategies of other market participants is able to see all the characteristics and the results of each one of them in the trading platform of his broker. Then they select one of them based on their profit goals, trading style, capital, risk tolerance level, etc.
Each one of the operations is copied automatically and configured in the account of the trader that replicates the strategy.
Advantages vs disadvantages of mirror trading
Before covering the advantages and disadvantages of mirror trading, I must present a clear warning: be careful, because absolutely everything in the strategy is replicated. That’s why it’s highly recommended that, before choosing this strategy, we dedicate time to researching the following:
➼ Invested capital. How much capital does the strategy that we are going to reflect have available? Does it correspond to my available capital?
➼ Financial assets in which you invest. Are they the assets I want to invest in? Do I understand each and every one of them?
➼ Objectives pursued by the strategy. Do I share the same or similar objectives?
➼ Most importantly: what is my risk profile? Does it correspond to the chosen strategy?
Now that we’re clear about the importance of research before proceeding with selecting a trading strategy to replicate, let's see some advantages.
- One of the biggest advantages of mirror trading is that, by being automated, we totally put emotions aside. This means that whatever happens, our feelings of fear or euphoria are not going to lead us to make wrong decisions on the fly.
- Transparency. The broker that provides the strategies offers each of the details of the same and, therefore, the entire process.
- Many believe that, as mirror trading is based on the strategies of other traders who have obtained results, they are infallible and they assure us of profits. But this is not the case: trading, whatever way it is, ALWAYS carries risks. Markets are constantly changing, and the same strategy may underperform in other market conditions.
- Beware of trading scams. Many scammers take advantage of the inexperience of others and promise huge profits. Steer clear of the promises of guaranteed earnings and find out what the strategies they offer are based on.
- May encourage lack of interest in training. Some may think that since everything is done for them, they don’t have to make an effort in anything else, just choosing a strategy and letting it reflect on their account. However, without good training we can’t know if the chosen strategy corresponds to our interests.
There are numerous possibilities for training in trading without having to dedicate large amounts of money or time. Admiral Markets offers free weekly webinars on a variety of financial markets topics.
In addition, they’re available to anyone who wants to study a free Trading Master program that ranges from the most basic to the most professional topics. If you want to register and start your course, just click on the following banner:
Mirror trading vs Copy trading vs Social trading
The basis of mirror trading, copy trading and social trading is, broadly speaking, the same: a trader copies the strategies and techniques of another trader. However, these three variants have their differences when it comes to putting them into practice. Let's see them:
In this case, the ‘original’ trader programs and directly hosts his strategy on the server of the company that provides this service for the rest of traders to replicate. The trader who facilitates the strategy must have programming knowledge so that he can send the signals that will later be replicated in the client's trading account.
When we talk about copy traders, we refer to the technique by which a trader connects their account to the system of the company that offers this service, becoming a signal provider. Like mirror trading, this strategy can apply to Forex copy trading or any other market.
Unlike mirror trading, in this case it does not program its strategy on the company's server but instead hosts it on its own server and, from there, sends it to the trading platform for the broker to forward it to its clients. A client can then become a copy trader based on this strategy.
Social trading is a kind of user community that works in the same way as a social network, but around a topic as specific as trading. In this case, we can talk about two types of actors that participate in this network: signal providers or professionals who share their operations; their followers, who seek advice, exchange opinions and investigate winning strategies.
Admiral Markets offers free demo trading accounts to test risk-free strategies. You can open one by clicking on the following banner:
Market sentiment - an alternative to mirror trading?
Admiral Markets does not provide portfolio management or mirror trading services but is preparing a new copy trading service that is expected to be available in February 2021. Until then, it’s offering an alternative, thanks to its MetaTrader trading platform.
Admiral Markets has the exclusive Supreme Edition plugin for MetaTrader 4 and Metatrader 5 that adds to these platforms, among other indicators, the Market Sentiment. You can consider this as something similar to an mt4 mirror trading function.
This indicator can help the trader know the majority positions of investors at a given time. What it does is measure the emotional state of market players and identifies whether the majority are long or short - that is, whether optimism or pessimism is dominating.
If you want to try this tool, you can update your trading platform with the Supreme Edition by clicking on the following banner:
Other articles that may interest you:
- The Virtual Portfolio - Learning how to trade
- Copy Trading With MetaTrader: How to
- Social Trading for Dummies: What it is and how it works
About Admiral Markets
We are a broker with a global presence and regulated by the highest financial authorities. We provide access to trading platforms. Admiral Markets offers to trade Contracts for Difference (CFDs) with stocks, Forex, indices, commodities, as well as Exchange-traded funds (ETFs) and stocks.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer or solicitation for any transaction in financial instruments. Please note that such business analysis is not a reliable indicator for any current or future performance as circumstances may change over time. Before making any investment decision, you should seek the advice of independent financial advisers to ensure that you understand the risks.