What is shadow trading

The general industry accepted term is “social trading”, which describes exactly what it is. Shadow trading, or copy trading, is a method of trading in short-term or long-term financial markets where you, the client, selects a master trader or traders to follow. So when the pro or his system hits the button, you can do the same.

What this means is that even if the master trader has an account of $100,000 and you only have an account of $10,000, if he risks 5 per cent of his cash on a trade, you will automatically only risk 5 per cent of your capital. It’s a rather clever system. The “master trader” or lead trader does not have access to your account, but you have access to his trades. In fact, many of people are doing this because they either do not have the knowledge or the time to to perform full analysis on their own.

The most important thing to note here is that you need to understand the risk.

If the so-called professional loses money, so do you. He cannot be held responsible because, technically, you chose to follow him. For someone who wants to take some risk with very little trading knowledge, it’s probably a good option because you can automatically follow a winning trader. In fact, you can follow multiple professional traders.

Interestingly, a recent research study conducted by Dr Yaniv Altshuler of the Massachusetts Institute of Technology, an expert in collective intelligence methods, found that copying a suggested master trader fared 10 per cent better than those trading individually and without guidance.

This type of trading does not guarantee that you will make money but it assists in avoiding the mistakes that beginner traders make. You are copying a professional, after all. Bear in mind, though, that even professionals lose money.