Is "Copy Trade" Legal?
Bert Antonik
Bert Antonik
Forex Trader / Instructor / Trainer and Certified ESL / IELTS Teacher
Published Jan 8, 2021
Recently I was asked about the legality of "Copy Trade" providers. Here is my reply. Please note, I am not a financial attorney and this reply is purely based on my years of experience and understanding of trading the market, particularly Forex. If anyone can provide more amplifying information I welcome any and all comments.
The term "Copy Trade" is misused and misunderstood.
A copy trade can only occur between 2 or more accounts held by the same trader. For example, a trader using their own TradingView account, to do market analysis, to automatically send a trade for execution in their own live trading account is a copy trade. However, there is no such thing as an AUTOMATIC "Copy Trade" between two different accounts or an information service provider.
A trader, lazy or not, can use whatever analysis information they chose to "PLACE" a NON-Automatic trade. The responsibility for the trade is always solely on the trader.
If however, trades are being automatically placed on an account by someone or an entity that is not a licensed "Financial Advisor" and is not by definition a "Professional Trader" (A professional trader is a person or entity that is legally, buy compliance with SEC / NFA / CFTC or other Regulations, authorized to trade other peoples accounts.) then the trades placed on accounts not owned by the entity are illegal. Any entity, trading for or on behalf or for an outside account must BE a legal Financial Advisor and Professional Trader and must disclose that fact otherwise NO disclaimer provides protection.
Anyone or entity that provides "Automatic Order Placement" for an account other than their own must meet the legal requirements established by the authorizing authority in which the account resides. Therefore, for example, a person or entity outside the United States must comply with U.S. regulations if placing an order to a U.S. brokered account. This is one of the reasons why many Brokers do not accept U.S. Citizen accounts.
Most, if not all, the copy trade proponents that I have seen advertised are in violation of U.S. SEC / NFA / CFTC regulations. And particularly those who make absurd claims about profit and minimize or even avoid honestly disclosing the risk involved.
Most of us "Trade Professionally", we are "Traders", because we derive income from trading, but, just because we trade professionally, we may not be a "Professional Trader" unless legally authorized to trade other peoples accounts.
In conclusion
Traders must, without exception, always take full responsibility for any trade placed in their accounts. If you allow someone or entity other than yourself to place a trade into your account, make sure they are legally authorized to act on your behalf. In the end, if you rely on others to trade for you and things don't work out the way you expected, it's always your own fault. Make sure you always do your due diligence.
