Social trading has helped traders, new and old alike, come together as a community to share resources. How beneficial is social trading in the long run?
With the rising popularity of Forex trading, investors, and traders, new and old, have adapted to newer trading strategies and platforms to maximize their profit. Platforms like eToro reported a record of over EUR 27 billion worth of trade in the second half of 2019. The claim was supported by Frankfurt Stock Exchange. Such a massive boom in the global trading market encouraged traders across the world to reach out to an integrated platform, and therefore, they adopted social trading as a part of their trading strategy.
Moreover, with the expansion of the online trading domain, a need for traders to remain updated with the market conditions and receive analytics reports arose. So, social trading was accepted as a forum that would help traders with the knowledge of the financial market to avoid chances of running losses.
Today, trading has become global thanks to technological advances and social networks. It has also become more sophisticated owing to the ever-evolving needs of traders. Social networks have been a hot spot for socializing and networking as well as trading. It is no longer just about exchanging money but also about building meaningful relationships with other traders and their families. With increased global access to information and an ever-increasing number of traders, social trading has taken off substantially.
What is Social Trading?
As a trading strategy, social trading takes the form of copying and executing trade strategies from a peer or more experienced traders. Social trading can be beneficial for new traders to learn the trading market by observing and adjusting to trading strategies worldwide. The social trading platform has often been described as a platform similar to social networks, meant for traders to interact and discuss strategies and market conditions in real time.
By social trading, beginner traders can identify experienced and successful traders, learn more about their trading strategies, and adopt the strategies for themselves. Social trading also grants access to the social trading wall shared by beginner and experienced traders, where they can come together to discuss strategies, market values, and bond together as a community. Traders can also share their trades and limit orders on this wall for the benefit of others.
Forms of Social Trading
Social trading, in recent days, has grown into a forum for online traders. It is not just limited to copy trading, but traders have collaborated to contribute knowledge and resources to be of help among community members. The other forms taken by social trading other than copy trading include:
Social trading platforms also host smaller trading forums and groups where traders can follow others, post strategies, or market information. This helps beginner traders to gain experience and learn from others and integrate into the trading community.
Auto trading, or automatic trading on the social trading platform, involves the exchange of trading signals to determine entry and exit points in a particular trade. Though auto-trading puts up limitations on a trader’s abilities, they are helpful in keeping away from risks. Read more here.
Brokerage services are also available on social trading forums. Brokers also offer trading services to affluent traders. Trustworthy brokers can also provide you with great trading signals or profitable trading opportunities.
How beneficial is Social Trading?
Social trading has been met with its share of criticisms, but it also has its own benefits, which has resulted in the popularity of social trading over the years. An enthusiastic trader can discover new opportunities for their portfolio holdings and for their brokerages. Trading ideas that are not well known can quickly become popular if enough people begin sharing them. The activity of social trading can be fun and exciting and profitable.
Trading as an individual allows you to perform trading operations under your own terms and with strategies, although you will not be able to calculate all possible outcomes of trading by yourself. An exchange of views among traders enables diversification of the trading strategies based on different ways of observing the market.
Discussed below are some of the advantages and disadvantages of social trading:
- Social trading encourages a healthy interaction among the trading community and helps traders bond together than creating isolation between experienced and rookie traders. Learning how to trade consistently and intelligently by watching others can help you become one.
- Beginner traders can find social trading extremely useful. It helps them learn about trading strategies and market conditions from consistent traders. Social trading also helps traders learn about trading errors and avoid them.
- Copy trading as a branch of social trading helps beginner or small-time traders copy trading strategies of experienced, successful traders and apply them to their own accounts to maximize profits.
- To begin with, you may find it difficult to identify which traders are successful.
- Not every trader might be willing to share his or her trading values and strategies.
- Social trading might cause beginner traders to entirely depend on the trading strategies laid down by experienced traders, causing stagnation in terms of trading strategies.
- Copy trading as a social trading strategy can cause a trader to run subsequent losses if not supervised carefully.
Social trading as a legal trading strategy is finding stable grounds in the online trading domain. It is a completely legal strategy while dealing with online trades and helps the experienced and new traders grow as a trading community. The Social Trading wall is an excellent space for traders to interact, share trading signals and information, and improve trades.
Each individual has their own set of skills, time limits, knowledge, emotions and particularities, which might make them unsuitable for trading alone. However, by combining these skills and those of other traders social trading easily builds a robust and successful trading community with better liquidity and efficiency than ever before.