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Mirror trading simply means copying the trades in your account by linking it to an account that someone manages, and that someone is what you would call an expert investor. Here are some of the biggest advantages and disadvantage of this trading style. Check them out!
Advantages of Mirror Trading
Help from Someone’s Expertise
Simply put, mirror trading lets you piggyback on someone else’s expertise. You do not need to have your own investing strategy or style. It saves you time and energy, as well as the stress.
Lower Costs
There are portfolio managers that charge between 0.5 percent and 2 percent of assets every year. The lower end of that range is favorably comparable with the 1.21 percent average annual expense ratio. There are others who do not charge a separate fee for mirror trading, while some let lead traders keep 100 percent of the fees that are charged by them.
Removes the Emotion from Trading
Since the mirror trading strategy is automated, it eliminates the emotion linked to trading. That means that someone who is usually actively involved in trading or is new to the investment world may gain some benefits from the strategy because of its generally passive approach. In other words, you can stay up-to-date with your portfolio without having to actively participate.
Transparency
The companies that permit mirror trading usually have full transparency for the accounts that are being followed.
Disadvantages of Mirror Trading
Limited Scope for Performance History
There is a limited performance history available from the portfolio managers and other traders who let investors to mirror their accounts. That’s because of the relatively recent entry into the marketplace. A huge slice of the performance records start after 2009, when the Bull Run kicked off, so the investors probably don’t have any clue how these experts will perform during a severe bear market.
Style Drift
Although you have signed up for an expert whose strategy you want to mirror, there is still a chance for a style drift. For instance, suppose you have been mirroring an expert whose strategy focuses on the long term value. That expert may switch to another strategy, say, short-term growth, to which you are not comfortable.
Inconsistent Performance
As mentioned, there is a limited scope for performance history. That means there is a possibility for inconsistency. If the magic that convinced you to mirror the strategy is already one, you may end up with great losses.
Low Value Generation
Even if you only pay 1 percent as management fee, that can still be expensive if the mirror investing results in little value generation for your account.
Beating the Market
It’s still impossible to say for sure that mirror trading can consistently beat market, given that even professional investors and mutual funds are not able to beat the market consistently. There is a chance that you are better off taking time and effort structuring yourown portfolio using exchange traded funds and blue chips. You can get Wibest Broker Forex News about Wibest Top Brokers here
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