At first glance, copy trading might seem unnecessary. After all, why not just invest in a reliable ETF like the S&P 500 and earn 3–10% annually? For many investors, that’s already a solid strategy—offering passive income, low effort, and historically consistent performance.
However, one major limitation of ETFs and traditional index investing is scalability.
If you want to use leverage or significantly increase your exposure to grow your capital faster, the problem is the large drawdowns ETFs like the S&P 500 can experience—often 30–40%, sometimes even more during crises. Doubling your exposure could mean facing 60–80% drawdowns, which can cause significant emotional and financial strain.
This is where copy trading can become a powerful alternative—if done wisely.
If you find a signal provider who keeps drawdowns consistently low, around 5–10%, the risk/reward profile shifts significantly in your favor. You might be able to scale your exposure 2x, 3x, or even 4x, while maintaining overall risk well below that of a leveraged ETF.
Even a “modest” 5% annual return with a 5% drawdown gives you a 1:1 risk-reward ratio. With 3–5x scaling, you could be looking at 15–25% annual returns—with less absolute volatility than the S&P 500.
This is the core reason to consider copy trading: potentially better returns combined with better risk management—if, and this is key, you choose the right trader.
Of course, there is the flip side: high-risk signal providers who chase quick doubling or tripling of their accounts. These strategies may work for a while but often come with huge drawdowns or even complete account blow-ups. I strongly advise against copying such traders unless you fully understand the risks and can afford to lose your capital.
Summary
Copy trading isn’t about finding the trader with the highest returns. It’s about finding someone who manages risk better than the market itself.
If you succeed at this, the upside potential is very attractive—especially for those looking to grow capital faster without accepting massive volatility and losses.