A broker adds a copy feature. A trader in the platform picks a provider, sets an allocation, and from that moment every position the provider opens appears in the trader's account. No confirmation prompt, no per-trade decision. That last detail is the one supervisors look at first, because it moves the arrangement out of information territory and into management territory.
The European position was set out by ESMA back in 2012 in guidance on automatic execution of trade signals. Where the copying is automatic, the activity is treated as portfolio management. Where the client receives a signal and separately decides whether to act, it is closer to investment advice or, if the signal is generic and not tailored, to marketing material. National regulators have followed that split, and the same logic shows up outside the EU in different wording.
The three roles inside one product
Any copy arrangement contains at least three parties, and confusion about licences comes from collapsing them. The broker holds the client relationship and executes the orders. The provider generates the trades. The technology vendor supplies the copier. Each is doing something different, and only some of those things require permissions.
| Role | What it actually does | Typical regulatory reading |
|---|---|---|
| Broker | Holds accounts, executes and reports the copied orders | Existing execution permissions, plus appropriateness and disclosure duties on the feature |
| Signal provider | Decides the trades that are replicated automatically | Treated as managing the follower accounts where copying is automatic |
| Technology vendor | Supplies the copier software, takes no trading decisions | Software supply, no investment permission on its own |
| Follower | Chooses the provider and the allocation, not the trades | Client, with the protections that come with client status |
SGHK sits in the third row and nowhere else. We build the software. The firm running it holds the licence and owns every decision made through it.
Where the discretion actually sits
Discretion is the test, and it is more granular than it first appears. Setting a fixed multiplier and a maximum lot size is not the same as choosing trades, so the follower who does that has still delegated the trading decisions. A follower who receives an alert and clicks to accept each one has not. Between the two sits a grey band of semi-automatic modes, and firms should not assume the grey band is safe: supervisors look at how the feature is used in practice, not at the checkbox that theoretically allows manual approval.
The provider's relationship with the broker matters too. A provider who is paid a performance fee on follower profits, promoted inside the broker's platform and given a leaderboard position is being held out by the firm. That is a long way from a public account that anyone can happen to copy. Firms running performance leaderboards should understand that ranking someone is a form of promotion.
What the broker has to do regardless of the provider's status
Even where the provider carries the management characterisation, the broker keeps its own duties, and these are the ones that get tested in a supervisory visit. Disclosures must describe the risk of copying in plain terms, including that past results of a provider say nothing about future results. Costs must be shown in full, including any spread markup or performance fee split, because a fee that only appears in the provider's terms and not in the client's cost disclosure is a reporting problem.
Appropriateness assessment does not disappear because a third party is picking the trades. If the copied instruments are complex, the firm still has to run the assessment on the client, in line with the appropriateness rules that apply to the underlying product. A client who fails the assessment for leveraged instruments does not pass it by proxy through a provider.
This is a description of how supervisors have framed copy trading, not legal advice. Characterisation depends on the jurisdiction, the exact mechanics of the feature and the firm's own permissions. Take advice from counsel qualified in each market before you launch.
The PAMM comparison, which is the cleaner structure
Managed account structures such as PAMM and MAM were built on the assumption that a manager is managing. The manager is named, the mandate is documented, the fee is agreed and the allocation runs at the account level. Nobody has to argue about whether management is occurring, because the structure says it is.
Copy trading arrived from the other direction, out of social platforms, and inherited the language of following rather than the language of mandates. That difference in origin explains most of the friction. A firm that wants automatic copying in a regulated market often finds the shortest path is to run it inside a managed account structure with a licensed manager, rather than to argue that automatic replication is somehow not management.
Monitoring after launch
The compliance work does not end at the launch checklist. Providers change behaviour, and a provider who ran controlled risk for six months can start doubling down after a drawdown, which flows straight into every follower account at the same moment. Firms need per-follower risk limits that are enforced by the platform rather than by the provider's good intentions, and monitoring that flags a change in a provider's risk profile before the followers feel it.
Detection also matters in the other direction. Coordinated accounts copying each other to game a promotion or a challenge are a recurring problem, and the tooling for spotting correlated account behaviour belongs in the same risk stack. A firm that offers copying and cannot see correlation across its own book is flying without instruments.
"The label on the feature does not decide the licence. If the client cannot say no to an individual trade, you are running portfolio management with a friendlier name."
— The SGHK Team
Key Takeaways
- Automatic replication, where the follower does not decide each trade, is generally read as portfolio management of the follower account.
- Broker duties on disclosure, cost transparency and appropriateness survive intact even when a third party picks the trades.
- Promoting, ranking or paying a signal provider moves the firm closer to holding that provider out, with the responsibility that follows.
- Managed account structures such as PAMM and MAM avoid the characterisation argument because they assume a named, licensed manager from the start.
Frequently Asked Questions
Does a follower approving each trade change the analysis?
It can, if the approval is genuine and the client can decline individual trades. Supervisors look at real usage, so a manual approval step that every user disables on day one is unlikely to carry much weight.
Is the copier software vendor regulated?
Supplying software is not itself an investment activity. The licensed firm operating the platform holds the permissions and remains responsible for how the feature is configured and marketed.
Can a broker outside the EU ignore these rules?
Only for clients outside the scope of those rules. Marketing an automatic copy feature into a regulated market generally brings that market's rules with it, which is the same reasoning behind reverse solicitation limits.
About SGHK
SGHK is a FinTech company that designs and builds its own software for the trading industry: the eTrader trading platform, Launch your Broker and Launch your Prop Firm. Every product is written, hosted and supported in-house and licensed to trading firms, with the CRMs branded to them, all hosted by us in the cloud, managed by each firm and built to scale across clustered servers as our clients grow. Everything is encrypted, and each firm is the only one with access to its data and its clients' data.