What Is Forex Copy Trading and How Does It Actually Work?

Other titles: Forex Copy Trading Explained, With a Real Service as the Worked Example | How Copy Trading Mirrors a Pro Trader's Trades in Your Own Account
Meta description: Forex copy trading explained step by step, using High Capital Group as the worked example, with costs, controls and risks.
Search term: what is forex copy trading

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Disclosure: I may receive a referral reward from High Capital Group if you become a client through my link. It costs you nothing extra.

Imagine a professional trader places a trade at ten o'clock on a Tuesday morning, and the identical trade appears in your own account a moment later, with no phone call, no email and no clicking from you. That is forex copy trading in one sentence, and the rest of this article explains what sits behind it, using High Capital Group as the worked example because it is the service I know best.

What is actually being copied

Forex, short for foreign exchange, means buying and selling the currencies of different countries. Every trade involves a pair, such as the British pound against the Australian dollar. If a trader thinks the pound will rise against the Australian dollar, they buy the pair. If they think it will fall, they sell it, and they can profit from that too. Forex is bidirectional, which is one of the main reasons people trade it.

Copy trading takes the decisions of one trader, usually called the signal provider or the lead trader, and mirrors them automatically in the accounts of the people who choose to follow. When the lead trader opens a position, closes it or changes it, the followers' accounts do the same, scaled to each follower's account and risk setting.

The worked example: how High Capital Group sets it up

High Capital Group, which was formerly known as Oak Valley Investments, runs its service in three steps, and the order of those steps matters for anyone who worries about who holds the money.

- You open your own account with a highly reputable, regulated forex broker. The account is in your name.

- You deposit your money with the broker. High Capital Group does not hold client funds and has no access to withdraw them.

- You set the account up so that the head trader's trades are mirrored on it automatically.

The head trader is Norman Hart, who has an honours degree in economics. The company says its team has over 10 years of trading experience. Your part is to open the account, deposit and connect the copy software. After that the trades arrive on their own, which is why the company describes it as running on auto pilot, even for people who are completely new to the markets.

What you control and what you do not

You do not choose the trades. That is the whole point, and it is also the main limitation, so it is worth being plain about it. If you enjoy analysing charts and placing your own orders, copy trading will probably feel frustrating.

What you do control is more than most people expect. You choose how much to deposit, subject to the minimum of US$1,000. You can set a personalised risk level, which means your account can trade more or less aggressively than the lead trader's, and it takes a few clicks to change. And you can access your money at any time, because it sits with the broker. You withdraw through the broker, the same way you would from any broker account, and the broker's normal withdrawal methods apply.

The company asks for a leverage setting of at least 30:1 on the account. Leverage lets a small deposit control a larger position, which can magnify gains and losses alike, so it deserves respect and I come back to it below.

What you pay and when you pay it

There are two costs, and both are stated on the High Capital Group site. The copy software normally costs US$19 a month, but the broker the company recommends has agreed to cover that cost for life when you sign up through the company's link. The other cost is a fee of 30% of profits, payable only after you have made money and calculated on a high water mark, with no upfront fees.

The high water mark deserves a short example, because it is fairer than many people assume. Say you invest US$5,000 and make US$1,000 in month one. You pay 30%, which is US$300. In month two the account loses US$200, so there is no profit and no fee. In month three it makes US$1,000, but you were US$200 down, so the fee applies only to the remaining US$800 of profit, which gives US$240. You never pay twice for the same gains.

The numbers, and how to hold them

The company publishes a target of a 10% average monthly return after fees and a target of keeping maximum drawdown below 15.0%. It also reports one losing quarter out of 33 and a profit factor of 4.99. Results from before 2018 came from the older legacy system, and the current system's record starts in 2018, so read the history with that in mind.

The word target matters. A target is what the trader aims for and has not promised, and no forex trader controls the market. The results are verified in real time by a third party, FX Blue, and you can look at the record yourself before you decide anything. The Past Performance page (https://highcapitalgroup.com/performance/?ref=YOURNAME) has the video and the link to the verified account.

Why leverage and drawdown still matter

Drawdown is the fall from the highest peak of an account to the lowest valley that follows. If an account grows from US$4,000 to US$5,000 and then dips to US$4,500, the drawdown is US$500, or 10%. A 15.0% target for maximum drawdown means the company aims to keep falls below that level, and a target can be missed. If a fall of that size would worry you, set a lower risk level or leave the whole thing alone.

The same goes for leverage. A requirement of at least 30:1 is a feature of how the system operates, and it is one reason a copy trading account can move quickly in either direction. The company also states that it does not use martingale, grid or hedging techniques, which it describes as the fastest way to blow up an account.

Who copy trading tends to suit

The company names four kinds of people it expects to hear from: high net worth individuals looking to diversify, professional investors, financial planners and new investors who want to enter the market. What they have in common is that they would rather follow an experienced trader than learn to trade themselves. It does not suit people who need a result by a certain date, people who cannot afford any loss, or people who want to place their own trades.

If you want the background on the two founders, the story of Dan Leman and Norman Hart (https://highcapitalgroup.com/about/?ref=YOURNAME) is worth ten minutes. If you would like to see what forex is in plainer language, the company's forex 101 page (https://highcapitalgroup.com/whyforex/?ref=YOURNAME) covers it. And if you want to see the regions and brokers available to you, the Get Started page (https://highcapitalgroup.com/get-started/?ref=YOURNAME) shows them without committing you to anything.

Copy trading is an investment, and investments can lose money. The sensible way to approach it is to read the record, ask questions, start with money you could lose without it hurting, and decide for yourself.

Risk warning: past performance is not a guarantee of future results. Forex trading carries risk and you can lose money. Only invest money you can afford to lose. Client money is held by a regulated broker in the client's own account.

Forex trading carries risk and you can lose money. The return and drawdown figures are targets, not promises, and past performance is not a guarantee of future results. Your money is held in your own account with a regulated broker. Only invest money you can afford to lose.
