This is part 1 of a three-part series on the history of copytrading, and its evolution to automated trading ecosystems such as GStar.AI.
Click here to read Part 2.
The concept of copytrading has come a long way, from the investment newsletters of the 80s, to chatrooms with “investment advisors” in the 90s and Mirror Trading in the 00s. Every investor enters the market with the aim of being able to outperform the market index, and have been willing to pay a fee to people they deem as having this knowledge in order to gain a comparative advantage over other traders.
With the advent of the Internet era, this process of information transfer has been automated, allowing for investors to be able to follow their preferred strategies through the process known as “copytrading”.
Copytrading links a user’s account with the strategy of an active trader, allowing the user to open positions that the trader opens, and closes them when the trader closes them, effectively copying the strategy, albeit one scaled to the user’s capital.
Over the past decade, the copytrading movement has gained momentum, with many popular platforms such as eToro and ZuluTrade emerging as the industry leaders, albeit offering slightly differing functions to suit users of different trading expertise. Overall, copytrading has been viewed as an easy way to earn money, with the layman able to place his hard-earned cash in diversified portfolios, which are indirectly managed by “professionals with many years in the industry”.
Indeed, the main aim of copytrading is to make trading accessible to the everyday man, and this is evidenced in eToro’s very first design, which was designed to be easily understandable and almost; cartoonish. The idea was to make trading simple and attractive, with avatars representing the various currencies traded, and the distance between the avatars representing the relative strength.
Figure 1.1 Early Design of eToro’s FX trading platform
eToro’s design has now evolved to a less graphic-based platform with more information and tools, but the idea of simplicity remains. Across multiple copytrading platforms, the concept has always been a clean and user-friendly interface, with many basic tools (some might say simplistic) available for users to construct their own portfolio or to verify the portfolio of other “professional” traders. As a concept, copytrading is a brilliant and innovative one, with the common man able to leverage on the collective wisdom of multiple individuals, thus putting many traditional traders out of business.
Overall, copytrading has opened up financial markets to the man on the street, and while there is still further progress to be made, copytrading is definitely here to stay. With the information transfer process automated, the next logical step would be to automate the trading process, removing the need of the active trader.
Click here to view part 2: Flaws within existing copytrading systems
