Social trading is a new way to invest. It is the simple concept of basing trading decisions on the wisdom of the crowd. Investors share details of trades – then others can use this user generated financial analysis. The growth of social media has led to an explosion in publicly shared trading information.
Social Trading Brokers
What Is Social Trading?
Since the advent of online trading, the social aspect of the activity has represented a natural and powerful draw for investors looking for shortcuts to easy profits. Social trading has gone through a number of incarnations over the years and at this point, it is safe to say that it is here to stay.
For many beginners, it presents a clear path towards some degree of success, as well as towards an actual understanding of how profitable trading should work.
How does it work?
It is a process where online traders make their own trades based on data generated by other users from various trading platforms. This can be by judging sentiment, or directly copying the trades of other traders who generate regular profit.
There are several online operations built exclusively on such user-generated financial data. They cover a wide range of business models. According to a study, around 80% of online brokers offer some form of social trading. Indeed, social trading has permeated the entire industry from the bottom up.
The most basic social trading channels come in the form of social media-based signal groups. There are operators who have built up entire businesses based on social interaction among traders, on their own, proprietary platforms.
Lately, chat-based work groups focused on trading have emerged too, with specially developed and designed platforms, allowing members of such groups to cooperate on a never-before-seen 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 those who provide useful data and those who consume it. It also represents a simple ‘entry level’ option for beginners and novices – learn from others, judge how they are making decisions and improve your own trading – all whilst hopefully making a profit on the strategy of others too.
With the right sort of copy trading strategy, those who have mastered their trading, can make rather good money. Traders can profit not only from their trades, but from being followed too. The broker will reward popular traders financially. Either via improved trading terms, or direct commissions.
Followers will find that the benefits could be two-fold. Firstly, this easy way to invest can produce good returns. Secondly however, followers can learn from the profitable traders they follow. Following other can provide a great learning opportunity. Success will however, depend on choosing the correct social traders to follow.
What Social Trading Sub-genres Are There?
The most popular form of social trading is copy trading. Copy trading is all about using massive social networks of traders. These allow followers to have their accounts linked directly to the accounts of expert traders. The trades of the “expert” are then automatically copied and replicated by the software.
This sort of social trading requires no input on the part of the follower, which explains its popularity. The size of investment is tailored to the follower. So a professional forex trader placing trades of over £10k, can still be followed by a novice risking just a few pounds.
Copy trading allows novice investors, with little time to trade themselves, to profit from the knowledge of other, more experienced, traders.
Social Trading Makes it Simpler
When social trading was first introduced it was designed to make trading available to anyone with a web browser. The aim was to make trading and investing simple, enjoyable – and profitable. The early pioneers of social trades ensured their platforms where intuitive and user friendly.
The platforms are constantly improved though, offering new tools and improvements. Concepts such as “one-click trades” for example. Brokers also put an emphasis on giving clients free educational tools, and explaining the concept of social trading. Demo accounts are a popular way for traders to get used to the ideas.
On most advanced platforms, traders can open a “buy” or “sell” position. They can also set “stop loss” and “take profit” orders. These are powerful risk management features. They automatically stop a transaction when a certain target is reached.
Similarly, the “trailing stop-loss” will keep a trade open, but adjust the stop loss upwards if a trade makes gains. Very helpful where traders are not monitoring their positions all the time.
What is Forex social trading?
Forex social trading is the sharing of trading information – whether tips, signals or opinion – but specific to the Forex markets. Social trading will generally include foreign exchange assets anyway, but is occasionally referred to separately.