Social trading is a new investment method. It is a simple concept of trading decisions based on popular wisdom. Investors share details of trades – others can use this user-generated financial analysis. The growth of social media has led to an explosion of publicly shared trading information.
Social Trading Brokers
What is social trading?
Since the inception of online trading, the social aspect of this activity has been a natural and powerful draw for investors looking for a shortcut to easy profits. Social trading has gone through many incarnations over the years and at this point it’s safe to say it’s here to stay.
For many beginners, it offers a clear path to some level of success and a real understanding of profitable trading.
How does it work?
It is a process by which online traders place their own trades based on data generated by other users on various trading platforms. This can be done by judging sentiment or directly copying the trades of other traders who make regular profits.
There are several online operations built exclusively on these user-generated financial data. It covers a wide range of business models. According to one study, around 80% of online brokers offer some form of social trading. In fact, social trading has spread across entire industries from start to finish.
The most basic social trading channels come in the form of social media based signal groups. There are operators like eToro, which have built entire businesses that have built their own business platforms based on social interactions between traders.
Recently, chat-based workgroups focused on trading have emerged with specially developed and designed platforms that allow members of these groups to collaborate on an unprecedented level.
The benefits of social trading
The appeal and top selling point of social trading is that it creates a sort of symbiotic relationship between the people providing useful data and the people consuming it. It also represents a simple ‘entry level’ option for beginners and novices. You benefit from other people’s strategies as well, learning from others, judging how you make decisions and improving your own trading.
With the right kind of copy trading strategy, those who have mastered trading can rather make money. Traders can benefit not only from trading but also from following. Brokers reward popular traders financially. Through improved trading conditions or direct commissions.
Followers will find that the benefits can be twofold. First, this easy investment method can yield good returns. However, followers can learn from the profitable traders they follow. Following others can provide great learning opportunities. However, your success will depend on choosing the right social trader.
What sub-genres of social trading are there?
The most popular form of social trading is copy trading. Copy trading is all about using a huge network of traders. This allows followers to link their accounts directly to professional traders’ accounts. The trades of “experts” are automatically copied and duplicated by the software.
This kind of social trading requires no input on the part of the followers, which explains its popularity. The size of your investment is scaled according to your followers. So a professional forex trader who trades over £1,000 may still be followed by a novice risking a few pounds.
eToro is arguably the largest and most advanced copy trading network. It offers tons of trading features, expert profile analysis tools, and monetization options. Total package of copy deals. As such, eToro is the preferred destination for millions of traders in 150 countries worldwide.
Easy Online Transactions
When social trading was first introduced, it was designed to allow anyone to trade through a web browser. The goal was to make trading and investing simple, enjoyable and profitable. The early pioneers of social trading ensured an intuitive and user-friendly platform. The platform is constantly being improved to provide new tools and improvements. For example, concepts such as “one-click trading” (eToro feature). Brokers also focus on providing free educational tools to their clients and explaining the concept of social trading. Demo accounts are a popular way for traders to familiarize themselves with the idea.
On most advanced platforms, traders can open “buy” or “sell” positions. You can also set “Stop Loss” and “Take Profit” orders. These are powerful risk management capabilities. Automatically stop trading when a certain target is reached. Similarly, a “trailing stop loss” keeps the trade open but adjusts the stop loss upwards if the trade is in profit. This is very useful if traders do not always monitor their positions.
Social Trading on eToro
Providing a state-of-the-art and simple trading platform since 2007 and serving more than 5 million users in 140 countries, the world’s leading social trading platform is now eToro. Over 1,000 assets are traded on the platform. It provides customers with powerful charting and analysis tools for online account management and various social features.
In 2010, eToro launched its first social trading platform. It has since evolved into a core part of the platform. The company enabled traders from all over the world to interact, learn from each other, copy each other, and view each other’s portfolios. Roubini Thought Lab predicts that by 2021, 1 in 4 traders will use social trading and investing services.
Copy trading explained
Copy trading has grown rapidly since the idea first emerged. Reflecting the growth of social media and its ability to instantly share information, copy trading (or ‘social’ trading as described above) allows traders to quickly share their trading ideas and strategies with anyone interested. People who follow these traders can automatically replicate their trades and profit from them.
Basics
Sometimes referred to as copy trading or social trading, this idea quickly gained traction as it allowed novice investors to watch, learn from, and copy more experienced traders. They can piggyback on their success and get the same deal for the same price. The instantaneous nature of these trades means that followers are not caught in price movements. This means that accounts can be configured to place exactly the same trades at exactly the same time as the traders they follow .
Social trading is very attractive to traders who are just starting out in the world of investing. It is often marketed as a way for new people to invest to get involved without a large amount of research or prior trading experience. But do you need to copy more transactions than that? Read on to find out… .
How does the trade work?
Once a trader decides to follow others using a copy trading platform, they need to search for the right traders to follow. This can be done using a variety of methods. Traders can filter by factors such as performance, trading frequency, trading assets, and trading style. Some may even find those with long-term results. Others may prefer those who have made big gains in the last few days.
You can run this search process in the window above.
With one click, once a user has found a person to follow, they can open any transaction made by that individual. Actual amounts can be as little as £1 per position as users can follow millionaire forex traders to make great trades. Once configured, whenever a new trade is opened or closed, the follower will have a trade opened or closed at the same price. Apart from the size of the investment, everything is the same.
Traders can copy (or follow) as many people as they like and reflect all their trades. Of course, they still have the flexibility to walk out of certain deals or end up copying. There are no commitments and the follower is in full control.
Copy trade benefits
Best brokers offering copy trading
Become an expert and get copied
Of course, the explanations given so far are very one-sided. Following other traders is what attracted the majority of people to social trading. However, there is another side to the coin: traders who follow themselves. Without talented and profitable traders, no one has anything to follow and the model breaks down very quickly. So what motivates traders to try and attract followers?
First, traders are initially trying to be profitable for their own benefit. They are opening and closing positions to increase the return on their investments. But assuming they are successful why trade with a social trading platform? Well, brokers usually reward traders with a significant number of followers, with a significant portion of their trading volume coming from them.
It’s all good when a trader makes a single trade, resulting in £1 to the broker via commission or spread. Even if the same traders make the same trades, what if 1,000 users follow, they all make exactly the same trades and generate a broker £1000? The broker can then reward the trader by reducing the transaction fee. Brokers know they need to attract good traders to make sure they actually have people to follow. Therefore, good traders can trade well, attract users and create more trading volume to quickly increase their profits.
Who can make the most of copy trading?
Indeed, social trading should appeal to a wide range of investors. Below are three different descriptions of ‘traders’ and how they can best utilize social trading platforms. Most people fall into one of these categories.
- Merchant trying to follow others
- The most obvious and most common group of traders. People who do not have the experience, knowledge or time to analyze markets or assets and trade at the best price. Why not simply follow other profitable traders? [ Follow or Copy ]
- Aspiring traders who want to learn
- Many traders want to learn more, and are quick to admit that they are not highly profitable traders – yet. But in the long run, they might want to make all the decisions and make their own trades. But for now, you can learn from more experienced traders and mix your trades while making a profit from them. [follow the map ]
- Profitable traders, increase profits
- Existing traders who are profitable elsewhere may see the appeal of additional income for purely following. In terms of risk management, it’s pretty rare to know that a trade will generate a certain amount of income. At worst, it can cover your transaction costs, and at best, it can significantly increase your profits. [ Lead ]
So, most people will fall into one of these groups, and social trading is suitable for all of them. Perhaps a group of slanderers who are hesitant about social trading – aspiring traders. They don’t particularly want to conform, they want to make their own choices, but why not get the best of both worlds? There is no reason for a merchant to be copied both and still copy the other.
Frequently Asked Questions
What is Forex Social Trading?
Forex social trading is unique to the forex market, although sharing trading information, be it tips, signals or opinions. Social trading usually includes forex assets, but is sometimes referred to individually.
How to start copy trading?
eToro is leading the way when it comes to social trading. Their trading platform makes it easy to find other profitable traders and their trading platform is very smooth. They offer a demo account where newcomers to social trading can learn everything including copying traders with demo funds. Demo accounts provide the best starting point, giving traders the freedom to use the platform.
Copy transaction with MT4
Copy trading software providers are not currently integrating Metatrader 4 extensively.
