Annual Review - What's Behind the Popularity of Copy Trading in 2021?

Copy trading has been experiencing more than a decade of development. In 2021, the demand for the service seems to have reached an all-time high, as a tremendous number of amateur traders flooded into the industry. This has, in turn, made numerous on-demand brokers to expand their business, starting to deliver copy trading service.

Fazzaco found out that, throughout 2021, 6 brokerage firms, including FXCM, Admirals, Axi, eToro, MultiBank and CFI, have either begun to offer copy trading or expanded offering into new regions. In addition, the former CEO PsyQuation Michael Berman has launched a new copy trading platform Ditto​. PsyQuation is an AI-driven analytics platform providing MT4 traders with actionable insights to improve trading and discover trading strategies that work.

Factors Fueling the Boom of Copy Trading

• The Surge in Retail Traders
  

2021 seems to be a breakthrough year for amateur traders, with retail investing achieving a phenomenal boom globally.

Reportedly, in India, retail traders accounted for 45% of total trading market share. Korean Exchange noted that, as of May 17, 2021, retail investors' accumulated net purchases of shares in the benchmark Kospi for 2021 rose to 51.7 trillion won ($45.6 billion), which exceeded 2020's annual record total of 47.5 trillion won. Besides, Credit Suisse estimated that retail army would account for a third of all stock market trading in the U.S in 2021.

As is known, a lot of people were confined to their homes or elsewhere during the Covid-19 pandemic, and they have dabbled in investment market to kill time and, more importantly, to make up for the lost income. "Retail investors saw the flash crash last year as a terrific opportunity to enter the market," said Angus Richardson, Co-Head of Pan-Asian Execution Services at Citigroup. "People being at home has also increased interest in equities."

• ​Investment Apps
  

The surge of smartphones and lower-cost mobile trading apps remain a key catalyst for the trend. Currently, an increasing number of brokers are starting to provide mobile trading. Retail investors, therefore, are able to trade on journey, at home, or over lunch breaks on cleverly designed mobile apps.

• Social Media

Social media has also been adding vim to the trend. For instance, in South Korea, influencers on YouTube and Instagram have inspired a new wave of day traders.

Copy trading allows investors to replicate self-directedly the positions of other traders with a good track record. Inevitably, it could be overwhelming for novice traders as they lack necessary knowledge and skills, and are unfamiliar with various instruments. At this point, copy trading plays a huge role. This solution is also favored by traders who do not have enough time to follow the financial markets.

"Powerful waves of passive and systematic investment long made retail investors largely irrelevant when framing market forecasts . . . until now," stated Alain Bokobza, head of global asset allocation at Société Générale. "Rather than criticising retail investors and their behavioural patterns, it is better to slot them into the money equation."

Views on Future Trend of Retail Investing

A burning question facing the Wall Street is whether the hyperactivity in retail trading is a temporary blip contributed by Covid-19. Whereas, many are beginning to hold the belief that this retail boom is likely to be more durable than previous.

Kasper Elmgreen, head of equities at Amundi, the French asset management group, believes that when more people get vaccinated, and get back to work, their enthusiasm may fade away.

However, Deutsche Bank's survey indicates otherwise, as retail investors said that they planned to maintain or increase their equity holdings when the economy recovers. "This millennial crowd wants to invest in the long shots, not save," the bank noted.

Today, having demonstrated their ability to move the market, retail investors are a crucial player of the financial industry. Also, experienced and savvy traders want to offer their own trading models, so as to benefit from it.