Social trading - What is it and How does it work?

Social trading is fairly recent development in the Forex markets whereby trader follows and copy trades made by other traders to make profits. The social trading works more or less like a social network. The difference is that instead of sharing selfies nor lunch photos, on a trading network people share ideas, trades and opinions about the market. Social trading allows investors to interact, watch trading results of other professionals and to brainstorm on market situation in real time. This, therefore, means as a less experienced trader in social trading, your financial trading decision is centered on other skilled investors and on generated financial content collected from various reliable platforms. In other words, once an investor identifies a successful trader and likes his/her trading approach, investors can start following them and copy their trades.

Characteristics of social trading.

Social trading is an alternative way of analyzing financial information by looking at what other traders are doing. In other words, traders can compare and copy trading techniques and strategies on these platforms. Before the advent of social trading platforms traders and investors rely on technical analysis to form an investment resolutions. Therefore, with social trading, investors can integrate and share their investment decision methods.

Why Social trading?

It saves time.

Social trading permits traders to copy another trader’s decisions in real time. In other words, for each investment the copied trader creates, an investment is built for the copier at the same proportional amount. This way, people spend less time actively trading and let other traders do the job for them.

It is transparent.

On eToro, every trader who joins the social platform has their public profile visible to everyone. Traders profiles on eToro enclose plenty of valuable information to help potential traders make quality trading decisions, such as trading history and gain profile composition.

It helps you gain exposure.

Even the most professional traders cannot possibly master every trading market. Some focus in certain geographical markets, while others learn certain assets classes such as stocks, or cryptocurrencies. Social trading platforms help traders familiarise themselves in markets they wouldn’t enter on their own for lack of experience or confidence. For instance, some traders are proficient at stock trading but would like to expand and diversify their portfolio into other asset classes. In this vein, they can copy a cryptocurrency trader for instance.

What are the benefits of Social Trading?

1. Reliable and quick information.

Social trading platforms search for reliable trading information and provide extensive information from expect traders across the globe. Moreover, traders get to interact with the professional traders on the platforms across the world. In other words, traders can get opportunities to interact with professional traders on the platforms. Not just copy their trades as we explained above. In many of the Brokers that offer Social Trading, there is usually a chat section, in which you can see questions asked and answered in real time.

2. Quick grasping of the trading market

Social trading platforms reduce the cost and duration of becoming an expert investor by allowing you to learn from seasonal investors, quickly and effectively. Do not spend hours trying to read something on its theory, understand it while doing it, as many Traders whose trades you will be copying tend to explain their methods in order to get more "followers".

3. Earning while still learning.

Social trading platforms permit you to learn from professional investors. On these platforms, you get to understand how to navigate the trading market and even earn money by copying their trade. Therefore you don’t have to acquire all the knowledge for you to start making profits. Copy first, learn later.

4. Build a trading community for investors.

Social trading platforms create a community of investors, where traders interact with other investors and share ideas. Social trading as an online platform enables traders to access trading information from anywhere in the world. Therefore, traders easily and quickly access information as long as they have the internet.

What are the disadvantages of social trading

1. Superstar Trades

Just like any online forum, traders tend to find different individuals with big egos hanging around on the platforms. These individuals may have succeeded in their trading market and would want to broadcast their position as the best traders. Therefore investors need to be careful when following these traders as they can mislead you. Always think for yourself, at the end of the day it is YOUR decission to choose what trader to follow.

2. Misleading information

Different individuals post information to these forums that seem sensible enough, yet sometimes it can be very costly and deceptive. People tend to blindly take their advice at face value without doing any research. Also, many of the best traders do not spend time on these forums, they JUST trade. Therefore investors should be careful about taking the advice of a so-called professional, even if they are very well-informed. Always think to yourself, if your strategy was as good, would you be spending more time trading, or trying to convince someone of how good you are? Of course, NEVER give money or your credentials for someone to trade for you, whatever the excuse.

3. Potentially Distracting

These platforms can be an excellent way to alleviate some of the boredom of day trading, but they can also be distracting as well. By spending much time on these platforms, people tend to miss good trading tips that occur throughout the day. Therefore, it is good to visit these forums during the day when there are no decent trading chances. Do not get lazy, use these platforms as an extra aid to your education or your trading strategy. Compare your trades with theirs, and try to find logic behind them.

Popular platforms which use social trading.

1. eToro

It is a platform that permits users to access and share each other trading activities and information. eToro has features such as demo accounts, copy trading and news feeds for the users. Therefore, news feed frames permit users to manually monitor their preferred trades, while the copy trading frame automatically does the coping for users. Moreover, eToro's demo accounts are unlimited and free for users and users can try all the eToro social and trading features.

2. ZuluTrade

ZuluTrade is not by itself a broker, it is a technology that is used BY brokers. Meaning, in this case, you can choose different broker accounts that are available for you, connect your own MT4 or Mt5 account, and copy other trader's trades. ZuluTrade was also intelligent enough to create his own brokerage house, which, logically will probably the best suited to have this technology. The good thing about this system, is that you can also have different accounts with different brokers in case you do not want all of your eggs in one basket. Why would you want to use different brokers? Well, from Spreads, overnight costs and even market execution differ from broker to broker. This means that the same strategy carried out in different brokers, can indeed bring you different results. Even AAAfx will not always be the cheapest in every instrument you might want to trade.

Brokers supported by ZuluTrade at 2014 - EverFX ALSO to be added

3. Spiking

The trading technology application was designed to help the average traders understand the concepts of the trading market. The verified updates help the investor in decision making on the spike in the trading market. It helps the average investors follow the big investors as they trade on the stock market, enabling the investor in making informed choices. In other words, Spiking is an application which uses the blockchain spike protocol to permit traders, to locate and follow market whales. Here, whales refer to large holders of cryptocurrencies, seasoned traders, key companies owning cryptocurrency tokens and mining pools.

4. Covesting

Covesting is a contract based and blockchain platform that allow new investors to connect with expert traders to earn a profit in the cryptocurrency market. On the platform, investors make earnings in the cryptocurrency market by simply copying trading tactics from professional traders automatically. In other words, investors choose the trader to copy from according to his approach of trading skill. Also, Covesting allows users to choose professional cryptocurrency traders according to their trading approach which suits their profit objective. Before you select an expert trader, users get an overview of each skilled trader approaches and access history of their real-time trading strategy. Therefore investors can know, before choosing the best professional trader to which match their profit objective. In this vein, professional traders are many; therefore investors decide to subscribe to as many professional traders as they want.

4. Trading View

The trading view is a web-based social trading platform for Forex and futures traders. It offers perfect charting tools and social components for starters and expert traders to share and view trading ideas. Through the platform setting, the forum allows users to copy, follow and well exchange information with other minded traders. Therefore, traders refer to their counterparts and other traders more experience on the current market conditions. The dialogues are in real time. In other words, traders publish their trading ideas, and they get feedback from other traders trading the same commodities. The objective is to support each other and prosper as traders by seeing what other investors do and sharing ideas.

Conclusion

To sum up, social trading brokers allows access and a free flow of information to help traders make an informed investment decision. In other words, social trading platforms offer investors platforms where they can efficiently and easily trade in the cryptocurrency market. Since social trading platforms permit both beginners and professionals, these platforms create a reliable trading forum which enables investors to earn profits as they learn.