The Concept of Social Trading in Binary Options

The binary options market came on stream way after the retail Forex market started operations in the mid-1990s. This allowed binary options stakeholders to learn from the Forex industry and copy some of the well-received innovations in that market. One of these innovations was the development of a binary options copy trade system, which provided an avenue for binary options traders without much experience to copy from the well-established and profitable traders.

What is available in the binary options market is more of a copy trading system and not really a system of social trading. However, the basic principles of the operations of the copy trade system are just the same as is seen in the Forex market. So whether you are trading Forex or you are carrying out binary options trading, you will have access to binary options copy trade systems.

 

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The Structure of Copy Trading in Binary Options

The copy trading system of binary options has the following components:

  1. The Copied Traders: These are the experienced traders in the system. The role of Copied Traders in binary options copy trading is a little bit different from what is obtainable in the social trading system. Here, the Copied Traders are the ones who generate the binary options trading signals.
  2. The Followers: The Followers are the traders who copy the trades generated by the Copied Traders. The Followers are those who own the accounts that trades are copied to.
  3. The Social Trading Platform Providers: these are the companies that provide the copy trade platform on which the entire system is built.

 

How the Copy Trade System in Binary Options Works

Most copy trade platforms only designate the Call/Put trade type for use in the copy trading system. By the nature of the copy trading system, trades are duplicated onto the accounts of the Followers automatically. This system is usually automated to ensure that all traders benefit from the trades at the same time.

There is a front end which provides the interface for Copied Traders to put up their profile and their accounts, so that their performance metrics can be compiled by the copy trade portal providers.

 

This is also where Followers can search for the Leaders/Copied Traders, evaluate their statistics, add/remove funds, and also copy/add/remove traders.

 

Then there is the back end of the copy trade software. This is where the system harnesses and synchronizes the functions that replicate the trades of the chosen traders to the accounts of the followers. This section of the portal requires high level of coding competence and maintenance by experienced programmers.

 

How to Copy a Binary Options Trader

The following is a description of the steps required to copy a binary options trader. The process is as follows:

  1. Platform selection and Account Opening
  2. Broker Selection (if the platform is owned by a third party company
  3. Account Funding and Setup
  4. Copied Trader Selection and Evaluation
  5. Capital Allocation

 

Steps (1) to (3) can be performed within a day, but the other steps will take more time and practice to perfect.

 

  1. Platform Selection and Account Opening

Selecting a binary options copy trading platform is not a big deal. However, you should select one which offers the following:

  • Works with regulated brokers. This is important, given the issues that surround regulation in the binary options market.
  • Provides good performance metrics on which the Copied Traders on the binary options copy platforms can be evaluated.
  • Provides a system of quick deposits and withdrawals.

Sometimes, the copy trading platforms are owned by the brokers themselves, which makes it easy to assimilate the trading account with the copy trading portal

  1. Broker Selection

If the broker is the one offering the copy trading portal, then this is not a problem. However if the copy trading platform is owned by a third party provider, then it is essential to ensure that the brokers working with the copy trading company are regulated. Some jurisdictions require both the broker and the copy trading provider to be licensed.

  1. Account Funding

Generally speaking, the Follower must fund a live account with the broker whose platform is linked to the copy trade portal, to be able to enjoy this service. When the account is funded, the trading account is synced with the copy trade platform. When the integration is done, the Follower is expected to select the traders or systems to follow and allocate capital accordingly. There are several systems available for account funding. It is preferable to use credit/debit cards, e-wallets and where available, cryptocurrencies. Cryptocurrencies are a new payment system which is still gaining traction in the market. It is advised not to start your copy trading with too much money. Start with a little money to understand how the system works, and also to master the art of selecting traders to copy.

  1. Copied Trader/System Setup and Evaluation

This is where the Follower selects the trader whose trades will be copied, or the systems/strategies that will be copied to the trading account. The performance metrics of a successful Copied Trader play a crucial role in the overall success of the venture. The most important metrics are:

  • Profitability Factor
  • Drawdown %
  • Risk Score
  • Profitability over 7-days, 1 month, 6 months and one year.

The best traders or systems to follow are those with good profitability factor, low drawdown % (<20% is ideal), low risk score (2/10 – 4/10 maximum), and profitability over 7 days, 6 months and one year that mimic each other, showing consistency in trade performance. Several traders or systems may match these metrics. Select 2 – 3 of the best performers for comparative analysis.

The need to continuously evaluate the performance of the copy trade systems you are following cannot be overemphasized. You should keep watching the Leaderboard for new performers that have emerged, and compare them with the current traders or systems being copied to your account. Do not hesitate to make changes when the need arises.

Apart from performance metrics, capital allocation is another component of copying a binary options trader. You should aim to allocate no more than 3% of your trade account to about 3 copy traders (1% each). This should be the starting point when you are new to a copy trading system. This will enable you know how each trader you allocate funds to will perform over time. If per chance, you have selected traders whose copied trades end up as losers, your account will still be healthy enough to recover from any loss shocks.

 

Conclusion

Binary options trading is a bit more complex than Forex trading because of the added element of the expiry time. This is what makes binary options copy trading very interesting. Everything is programmed on the copy trade portal in such a way that all trade parameters are implemented for every trade. So for traders who have always had difficulty trading binary options and choosing appropriate expiry times, simply let the experts do it for you. Copy a binary options trader using a copy trade portal.