Top traders let you copy their trades – how copy trading works

Copy trading, once a niche experiment in online forex circles, has evolved into a mainstream investment strategy. It allows everyday investors to automatically replicate the trades of experienced professionals or algorithmic traders in real time. In Australia, platforms like eToro, Pepperstone, and AvaTrade are making this form of “social investing” increasingly accessible, promising participation without the steep learning curve of traditional markets. Yet as with all seemingly easy ways to invest, the details – and the risks – demand careful attention.

Major Points to Learn:

• Copy trading lets investors automatically mirror another trader’s portfolio or trades in real time.
• Australian platforms offering copy trading must hold or partner with holders of an Australian Financial Services Licence (AFSL).
• While it offers simplicity and diversification, copy trading also concentrates risk if copied traders make poor decisions or markets shift sharply.

How Copy Trading Works

At its core, copy trading connects two participants: a lead trader and a follower. The follower’s account automatically executes trades that mirror those of the lead trader, in proportion to their own investment size. If the lead trader buys 5% of their portfolio in an ASX200 ETF, for example, the follower’s portfolio will allocate the same proportion automatically.

Unlike managed funds or ETFs, copy trading gives the investor full visibility of individual positions and allows them to stop, pause, or adjust allocations at any time.

The history of copy trading

The concept of copy trading grew out of a simple need in the mid-2000s forex community: traders wanted to automate and share strategies without having to constantly monitor markets. Early forex brokers began offering signal services – alerts that sent notifications when professional traders placed or closed a trade.

Around 2005–2008, platforms such as ZuluTrade, Tradency, and Myfxbook took this a step further by creating mirror trading systems. These allowed users to automatically execute trades made by experienced traders directly in their own accounts. The innovation was made possible by the integration of trading APIs (Application Programming Interface), and software like MetaTrader 4, which could copy trade data across accounts in real time.

The real acceleration came in the 2010s, when new multi-asset social networks like eToro and AvaTrade extended the model beyond forex into shares, ETFs, and cryptocurrencies. They combined trading execution with a social media layer – trader profiles, performance dashboards, follower counts, and newsfeeds – turning trading into a transparent, community-driven activity.

This shift transformed copy trading from a niche automation tool into a mainstream form of social investing, accessible to beginners who wanted exposure to markets without deep technical expertise.

Today, leading global platforms such as eToro, Pepperstone, AvaTrade, and ZuluTrade integrate this technology across equities, forex, crypto, and commodities. These platforms have become particularly popular with younger investors seeking engagement and transparency over passive index exposure.

The regulatory context of copy trading

Despite its global origins, copy trading in Australia is governed by the same broad financial regulations that apply to investment platforms. Providers must either hold an Australian Financial Services Licence (AFSL) or operate as an authorised representative of one.

ASIC has cautioned that while copy trading platforms can make investing more accessible, they can also blur the line between execution-only and financial advice. Lead traders are not licensed financial advisers, meaning they do not have fiduciary duties toward followers.

Australia’s regulatory environment contrasts with parts of Europe, where copy trading often falls under “portfolio management” directives. The Australian approach treats it more as an execution mechanism, provided it does not cross into personal advice territory. This subtle distinction gives local investors flexibility, but also requires greater personal responsibility.

Fees, leverage and returns of copy trading

Copy trading platforms generally earn revenue through spreads, performance fees, or subscription models. eToro, for instance, charges via spreads on trades and compensates lead traders based on their number of followers and trading volume. Pepperstone and AvaTrade offer “mirror trading” via third-party plug-ins, usually integrated with MetaTrader 4 or 5.

For investors, the total cost depends on factors such as market spreads, overnight financing rates, and any profit-sharing arrangements. While fees are lower than most active fund management models, they can accumulate quickly in high-frequency environments.

Remember that leverage – a hallmark of many forex and CFD platforms – can amplify both profits and losses. New investors can underestimate how swiftly leveraged positions can erode capital. ASIC has placed strict caps on leverage (30:1 for major forex pairs, 5:1 for shares) and mandates prominent risk warnings. Copy traders should confirm whether their chosen strategy uses leverage, as it fundamentally alters risk exposure.

Advantages & pitfalls

Copy trading’s appeal lies in its simplicity. It allows investors to benefit from experienced traders’ insights without the need for constant market analysis. It can also provide diversification, especially when copying multiple traders across different asset classes. Some platforms allow back-testing and performance tracking, letting users filter by risk score, drawdown history, and time horizon.

However, the pitfalls are equally clear. Most copy traders follow top performers based on recent returns – a behaviour that often leads to chasing momentum rather than sustainable skill. Algorithms can automate execution but not judgment. Market downturns reveal that many copied strategies share the same biases and correlated risks, resulting in widespread losses.

A less-discussed drawback is information asymmetry: followers typically see a trader’s past performance but not their underlying rationale or risk management approach. Even with transparent dashboards, metrics like “win rate” or “monthly gain” can be misleading without context.

Major players in the Australian market

The dominant copy-trading providers in Australia include:

• eToro – The most recognisable global platform, offering equities, ETFs, crypto, and CFDs. Operates under AFSL 491139.
• Pepperstone – Melbourne-based broker with third-party copy integrations like DupliTrade and Myfxbook AutoTrade.
• AvaTrade – Offers AvaSocial, allowing users to follow or copy trades across multiple markets.
• ZuluTrade – Aggregator platform connecting users to thousands of traders worldwide, available via partner brokers.

Traditional brokers such as CMC Markets and IG have so far avoided direct copy-trading models, preferring research tools and education-led engagement. This underscores a divide between social-driven fintechs and legacy trading houses focused on compliance and client suitability.

How it fits into a portfolio

For sophisticated investors, copy trading can act as a satellite allocation – a small, higher-risk component of a diversified portfolio. Allocating 5–10 per cent of total capital to follow expert traders can complement core holdings like ETFs or managed funds. The key is to view copy trading as an investment strategy, not a substitute for financial planning.

Professionals often recommend setting clear limits, and periodically reviewing performance rather than relying on full automation. The ability to monitor and adjust positions in real time gives investors flexibility absent in managed funds – but it also demands discipline.

The future of social investing

Copy trading is gradually merging with broader social investing trends, where investors exchange ideas, sentiment, and data. Platforms are layering in AI analytics, risk scores, and machine-learning filters that identify consistent outperformers. Over time, regulators may push for greater accountability and clearer definitions of “advice” in social trading contexts.

Copy trading will not replace traditional investing, but it may democratise access to professional-level execution for retail investors – provided users understand that “automated” never means “risk-free”.