[4] Initially, some traders conveyed their intention to open or close specific operations at certain levels to their followers through newsletters.
When the chat rooms grew, other traders could also comment or post questions online, which required a persistent presence in front of the screen and often paying a fee to use the platform.
[6] At that level, some traders realized the potential benefits that an automatic replication system could produce if built.
[2][10] Foreign exchange copy trading has been plagued by scams and regulators have tried to clean up this industry.
[11][12] In 2012 eToro received trademark for their CopyTrader system, which has representatives from over 140 countries and over 135,000 verified traders to copy.
[15][16][17] As of 2013, Dr. Altshuler has been collaborating with Professor Alex "Sandy" Pentland of MIT on a study that aims to find a "sustainable" social trading mechanism in the aim of fine tuning traders' ability to benefit from copy trading.
[10] In 2019, Gortner and van der Weele were researching Arrow-Debreu securities double auctions experimentally with and without peer data.
A recent experimental study argues that merely providing information on the success of others may lead to a significant increase in risk taking.
[5] In a different context, as Theo Offerman and Andrew Schotter [de] (2009) pointed out, when the payoffs are large, imitation can lead subjects to make risky decisions.
In the context of a financial market, where asset prices are generally volatile, imitation can have particularly significant consequences.
Copy trading can also lead to excessive risk-taking and non-optimal outcomes, both personally and socially.
Jacob Goeree [de] and Leeat Yariv (2015) and John Duffy (2019) demonstrate in the context of social learning studies that a significant portion of subjects have a strong desire to follow others, even when there is no performance data.
[30] FCA adopts the view set out in the European Securities and Markets Authority's (ESMA) MiFID Questions and Answers: Investor Protection & Intermediaries (Question #9) on how copy and mirror trading function under the MiFID Directive.
As such, the FCA has sent letters to those companies providing copy trading services notifying them of their intention to classify them as portfolio or investment managers.