Complete Guide To Social Trading
Recently, investing in trading has drawn strong interest from all types of investors because of its large potential gains. But not every trader can achieve those gains; it takes considerable experience and practice, which not every trader who wants to invest their money has. It helps to understand How to Open a Trading.
For that reason, some traders prefer social trading, because many beginner traders want to interact with professional traders to learn their trading strategies and their views on the current state of the market.
If you want to understand how social trading works, keep reading.
What is social trading?
Social trading is a form of investing that lets investors watch the trading behavior of their peers and of expert traders, and follow their investment strategies using copy trading or mirror trading.
It works by creating fast access to the financial markets through a platform built specifically for this, so that beginner and professional traders alike can share the strategies they use and copy each other’s trades instantly.
The major advances in technology have made copying in trading easier; there are now many social trading platforms that both sides can join and share their activity openly.
Social trading is an innovative way to reach the financial markets without needing strong analytical knowledge. What it requires is access to a list of the best-performing traders who share their own trading results, after which the trader copies their strategy in their own account.
Social trading is also called “copy trading”, since it is a form of investing that keeps growing over time. This helped it spread, especially because it does not require any special skill or experience.
To make the idea clear, here is an example: when you copy a trade, you are not investing in currencies (whether fiat or digital), energies or indices; you are investing in a trader.
If that trader succeeds in the trade, you get your share of their profits, because that trader handles everything involved in trading: reading financial news, analyzing the market and following trade signals, while you simply benefit from their active trading.
As for the history of this type of trading, trading communities began to form at the start of the current century, in 2010, when the first social trading platform appeared. It was limited to professional traders at first, but in recent years it has expanded and spread widely, reaching retail traders interested in learning how to trade or in finding experts to copy strategies from.
These social trading networks have become very popular in recent years, especially with the big developments in communication and the huge technology revolution that made every difficult thing easier. It has become common to find Google searches for “social trading for food commodities” and the like.
Are social trading and copy trading the same?
There are three terms, social trading, copy trading and mirror trading, that are often used interchangeably because they are very similar, but there are some differences you should know.
Social trading: This is a single step; it lets the trader copy or replicate the strategies of professional traders, and also lets them interact with other traders, ask them questions, rate their performance, and so on.
In this type of trading the trader has a personal profile, as on social networks, through which traders can share opinions, operations and their experiences with trades.
Copy trading: In this type, the professional trader links their personal account to a platform where they can record, evaluate and verify all their operations, then display the results of their trades to other investors so they can copy them.
Mirror trading: This type appeared before the other two because it is tied to automated trading. It consists of replicating a strategy that the trader programmed earlier, hosted on the server of the company that provides trading services, to make it available to traders who want to run it.
What are the advantages of social trading?
Social trading has several advantages, which we list below:
It helps the beginner trader connect with other traders: Through social trading a beginner can ask questions about the market and its trends to other experienced traders, and discuss all the events that might affect investors.
The ability to trade without prior training: Social trading lets a beginner trade without needing prior training or full knowledge of the market situation, especially since they can then learn from the experience of other traders.
Seen by some as a lower-stress way to invest: Some traders view social trading as a suitable method for those who cannot handle high levels of pressure and who cannot easily control their emotions toward negative market events, since the trader copies the trades of other traders. This does not remove market risk.
What are the disadvantages of social trading?
Despite how widespread it is and how many traders prefer this type of trading, it carries several drawbacks, the most notable being:
The trader’s weak awareness of market risk: Through this type of trading, traders can go along completely with the views of experts and other traders, which makes them feel very comfortable, and this does not fit the risks of trading. In this case the trader develops weak awareness and cannot determine the right amount of capital to invest.
Higher cost than other types: This type of trading involves a higher cost compared with other trading methods, since an extra commission is added to the spread the trader pays the broker for each replication or copy of the signal provider.
Each trader’s risk profile and capital differ from others’: The risk profile and capital a beginner trader has may be completely different from those of the trader they copy, so the trader must be careful when replicating some high-risk strategies.
In addition, the market may change during the time between the signal provider applying their strategy and another trader replicating it, which can make the strategy ineffective.
The possibility of being cheated or scammed: Despite the controls that many brokers offering this service may apply, there is a chance the trader is cheated or scammed by brokers simulating fake successful strategies to gain points and popularity, so the trader should research well before deciding to replicate a particular trader’s strategy.
What are the best social trading methods?
To know the best social trading methods, we should mention the best platforms that give a trader good, suitable social trading.
Binance platform
Binance is one of the strongest and most well-known platforms for currencies. It holds a large number of currencies, and includes modern digital currencies.
It is easy to use and highly secure, and its fees on currencies are low compared with other platforms. It supports many languages, including Arabic.
The company is a leader in social trading technology; it developed a professional collaborative trading platform that lets investors monitor investment trading behaviors.
FXTM
This company is a leader in the field of social trading technology, letting traders trade by copying, which is a good opportunity for beginner traders.
This platform has attracted more than 2 million clients from 150 countries around the world since it was founded, and it specializes in trading using leverage.
Social trading for beginners
Every trader, beginner or professional, must fully understand that past returns are not a guarantee of future returns, so copying or replicating others’ strategies is not effective in every case. No matter how experienced the brokers are, that is not proof of successful trades.
As a beginner trader you should also be fully aware of the market situation, be cautious, and set a trading plan that suits you. This does not conflict with trying to learn other traders’ views on market trends and their experiences that are similar to yours and fit your capital.
You should know that social trading still requires creating your own trading strategy.
At first you should rely on the details in your profile on social trading platforms, be careful and avoid risks, stick to your copy-trading planning period, and pay attention to several things:
Diversify between different strategies: Vary between different strategies, since following varied strategies gives you the chance to benefit from different market conditions and reduce risk.
Handle trading steps carefully: Pay attention and be cautious about the amount the trader manages; if the account size the trader manages is smaller than yours, be careful in that case.
In closing, know that every trading method has advantages and disadvantages, so do not assume that relying on copy strategies means you are completely safe. Be careful, verify the credibility of brokers, and follow the market continuously, especially because trading in general is an investment full of risks, so be careful with any strategy you follow.
Disclaimer: This article is for educational purposes only and is not investment advice. Social trading and copy trading do not remove risk: past returns do not guarantee future results, and copied strategies can fail. Trading CFDs and leveraged products carries a high risk of losing money quickly. Consider your objectives and, if needed, seek independent advice before trading. Some outbound links in this article are affiliate links; if you open an account through them we may earn a commission at no extra cost to you.
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