Copy trading has become increasingly prominent with the rise of online services, new research has found.
This strategy of matching portfolios to often more experienced traders is now used by 16% of retail investors, exchange-traded products company GraniteShares reported on Thursday.
“The idea of copy trading is appealing to some investors who perhaps don’t want to pick stocks themselves and instead seek to mimic the strategies of others,” GraniteShares founder Will Rhind said.
Of the one in six who use copy trading, 23% have begun doing so over the past two years, while just 9% have used the strategy for over five.
The majority said copy trading got them into investment, according to GraniteShares, with one in 20, or 5%, estimating between 75-100% of their deals are done using the strategy.
Online trading platforms, such as eToro and Robinhood, often offer copy trading services, which show other investors’ portfolios and sometimes even allow people to match these automatically.
GraniteShares noted such offers could allow investors to benefit from profitable trades of more experienced investors, but also highlighted it could expose people to “major risks”.
Some 86% of copy traders said less than half of their investments were based on others.
“It is reassuring to see that copy traders are not basing their entire strategy on the technique, as not all investors will have the same appetite for risk or capacity for loss,” Rhind added.