Investing is gaining more and more popularity, as people are looking for simpler and more reliable ways to earn money. Self-trading involves a lot of learning, possible major losses in the process, and a significant investment of time and money. That is why today many traders prefer money management and copy trading.
Although in both cases other traders manage your trades, these investment methods have significant differences and therefore suit different investors. Let's see which type is right for you.
MAM Investing
This is the easiest way of investing. You fund your trading account and let the money manager work its magic. All trades, including opening, closing and changing, are completely controlled by another trader. All you have to do is monitor your equity in order to support your account in case of a drawdown.
Multi-account management system or MAM allows to connect multiple accounts to the master account and manage the trades. There is a wide range of trading settings, like your risk level and other specifics of your preferences. MAM is quite a popular solution in Forex that gives you a real chance to earn extra money, but you must be cautious when choosing a MAM provider.
Advantages of MAM Investing:
- You don't need to have any Forex knowledge;
- Trading won't take a minute of your time;
- Your funds are managed by an experienced trader, which gives you an advantage right from the start;
- You yourself choose a money manager depending on his/her trading success, trading strategy used and the risk level;
- The high water mark system implies that you will only pay a commission if your account makes a profit;
- At any time, you can choose another money manager if the previous trader does not suit your goals.
Disadvantages of the Method:
- Part of your profit will go to the money manager;
- You won't have access to trades on your account: you won't be able to close a position that you think is a failure or set exit points that you find more appropriate.
MAM investing is perfect for complete beginners who don’t want to go through even basic trading training and cannot find the time to track the trading process in their accounts. You just have to choose an experienced trader with high results and wait for the profit.
Copy Trading
This investing method involves automatic copying of trades to your account. Here you will need at least basic knowledge of trading, since it is you who will monitor the account status, not another more experienced trader.
Social trading, also known as copy-trading, is an investment system that allows successful traders to share their trades with other investors and receive a commission in case of profitable trade. This type of trading is a "Holy Grail" for investors with zero experience in financial markets or who do not have enough time to focus on trading.
Copy trading may also come in handy for improving your trading strategy because you subscribe to the trading signals of professional traders.
When choosing a copy trading platform, make sure to check the conditions. Many platforms offer competitive trading conditions where you can set everything for a better experience. For example, which signals to duplicate, how much money will you have capital to invest per one trade, Take Profit/Stop Loss ratio, and so on.
Before starting copy trading, ensure you follow your trader's deals and statistics for a long time, as it will help to prevent your deposit from losses.
Advantages of Copy Trading:
- Most of the work, including market analysis and finding trading opportunities, is done by another more experienced trader;
- You are in full control of your account and can personally set exit points that suit you, as well as close trades that you think are unsuccessful or open your own positions;
- You don’t need to fully delve into Forex trading and study all the nuances, since the main trading will be carried out by the signal provider;
- The software allows you to manage your risks.
Disadvantages of the Method:
- Basic knowledge in trading is indispensable here;
- The signal provider manages the account based on his/her capital: if he/she uses a martingale strategy and your account doesn’t have enough funds for this, then you can lose your investment - be careful;
- You will need to constantly monitor your account: the successful outcome of some trades will often depend on you.
Copy trading gives you more freedom than MAM investing. However, you will need to learn the basics of trading and the main strategies used by signal providers.
Both methods have their pros and cons. Choosing an investment method mainly depends on how much time and effort you are willing to invest in trading. Copy trading will give you control, but it will require an investment of time and effort. MAM investing allows you to fully rely on a professional. The choice is yours.