Through copy trading, users can automatically duplicate positions started and managed by particular third parties on the financial markets.

Contrary to mirror trading, a method that enables traders to copy specific strategies, copy trading connects a portion of the copying trader's funds to the account of the copied investor. Any trading decisions made in the future by the copied investor, such as opening a position, putting Stop Loss and Take Profit orders, or closing a position, are also executed in the copying trader's account in proportion to the copied investor's account and the copying trader's allotted copy trading funds.

Typically, the copying trader has the choice to disconnect copied trades and manage them independently. Additionally, they have the choice to permanently terminate the copy relationship and close all copied positions at market rate. Traders known as signal followers frequently pay flat monthly subscription fees to traders known as leaders or signal providers who want to copy the trades of other investors. Popular investors might also get a spread rebate on their private transactions of up to 100%. By allowing others to view and copy their trades, the incentive programs encourage traders to conduct business publicly rather than privately.

A new type of investment portfolio has been created as a result of copy trading; some industry insiders refer to these portfolios as "People-Based Portfolios" or "Signal Portfolios," borrowing this terminology from the well-known MetaQuotes Signal Marketplace. People-based portfolios are different from conventional investment portfolios in that the investment funds are invested in individuals as opposed to conventional market-based securities.

Although followers do not deposit funds into the signal providers' accounts, since the latter have indirect control over a portion of the capital of the signal followers, they in fact act as portfolio managers. Social trading platforms therefore offer a cutting-edge framework for delegated portfolio management.

Initially, some traders used newsletters to inform their followers of their plans to open or close particular operations at particular levels. Later, the initial trading room with the same idea debuted. Instead of using email to announce the execution of a transaction, a trader wrote it in a virtual room where followers could read and replicate the transaction. Other traders were able to comment or ask questions online as the chat rooms expanded, but doing so required a regular presence in front of the screen and frequently paying a fee to use the platform.