What is social trading?
What is social trading? What is the difference between social trading and copy trading? What are the advantages and disadvantages of copying successful traders' trades? What social trading platforms exist?
More and more people decide to trade cryptocurrencies or fiat currencies because they want to make the most of their savings or intend to devote themselves to this industry at a professional level. Unfortunately, not everyone has the necessary training for trading or enough free time for its development. For this reason, social trading has become popular in recent years. In this article, you will learn what social trading is, how it works, and what social trading platforms exist.
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What is social trading?
Social trading is a community of traders that works in the same way as a social network, but is focused mainly on trading. Community users can study methods and strategies, share analysis and charts, discuss common interests, and copy trades of professional traders. Social trading is an opportunity for novice traders to get to know the financial market in general and complex products, such as contracts for difference (CFDs) in particular, without prior training.
What is the difference between social trading and copy trading?
Social trading and copying deals are two terms that are often used interchangeably, but have some small differences that you should be aware of:
- Copying transactions. In this case, a professional trader links his personal account to the platform so that other traders can copy his trades. Thus, a professional trader (provider) earns not only on his strategy, but also has a percentage of profitable trades copied by other traders (subscribers). Subscribers, in turn, can earn on Forex without knowledge and experience. In addition, they can control the copied transactions – change the transaction volume in accordance with their deposit and money management, and even close transactions manually. At the same time, all funds remain on the subscribers' account, unlike PAMM accounts and other forms of investment.
- Social trading. This is one step more than copy trading, because it allows you not only to copy trades, but also to interact with other traders, ask questions, evaluate their effectiveness and much more. Traders have a profile, like on a social network, and through it they share their opinions and trading operations. One of the ways to access these communities is through a trading platform.
Pros and cons of social trading
Like any form of investment, social trading has its advantages and disadvantages.
Benefits of Social Trading:
- Offers the opportunity to chat with other traders, ask questions about all types of markets, discuss strategies, etc.
- Allows you to start trading without prior training and gradually learn from other experienced traders.
- Traders who cannot cope with the high level of market pressure and easily succumb to emotions can choose a safer way to invest in social trading by simply copying the positions of other traders.
Disadvantages of social trade:
- Novice traders who have decided to engage in social trading at the first contact with the market can feel comfortable entrusting their operations to professionals. This leads to a lower perception of risk, which is very dangerous.and making a decision about investing capital.
- This may be due to higher costs, since in addition to the spread that we pay the broker for each operation, an additional commission is added for copying traders' trades.
- Some traders use risky strategies to gain popularity faster and earn money by selling signals. Therefore, it is important to conduct research before deciding to copy a particular trader's trades.
- Your capital and money management may be very different from the trader whose trades you are going to copy. Therefore, you should be careful when playing certain high-risk strategies, such as scalping.
Social Trading Platforms
There are many websites that allow you to observe the behavior of traders and copy their trades. We will look at the most popular of them.
eToro is the industry leader when it comes to copying deals and social trading. The patented social trading platform supported by eToro is not only visually attractive and very easy to use, but also has many special features and customizable parameters that make it the most popular.
eToro operates on several levels, thanks to which almost every investor can find something for himself, regardless of investment goals and trading style.
The first function of eToro is to monitor the investment activity of other users, which allows you to determine market sentiment based on various statistics. The second function is, of course, tracking the best players so that you can learn from their experience and look at the market for them eyes. The third function of eToro is, as is the case with other social trading platforms, copying the trades of successful traders.
ZuluTrade is one of the most popular social trading platforms. It allows you to monitor other traders and gives you access to their investment statistics: the duration of work on the platform, the number of transactions carried out, the amount of profit and loss. You can also see the number of investors subscribed to this trader.
ZuluTrade allows you to set the required risk level, which automatically distributes a certain pool of investor funds between traders' trading signals with the highest efficiency. Just like in social networks, you have the opportunity to evaluate traders. Thanks to this, you can choose the best strategies of traders.
The simplest solution is to use a trading signals service designed for traders using the MT4 and MT5 platforms. Subscription to the signal is carried out in a few clicks. The big advantage of MQL signals is that signal providers go through a one-month trial period before they start offering their signals on the MQL social trading platform.
Payment for the offered signals is made by bank transfer, credit card or WebMoney. MQL is also very convenient because trading signals can be "turned on" from the trading platform, which contributes to the rapid entry into the social trading market.
4. cTrader Copy
cTrader is another interesting social trading platform offered by many brokerage companies such as FIBOGroup, ICMarkets, Skilling, Axiory, RoboForex, etc. This platform is for experienced traders who prefer a high speed of execution of transactions and a large selection of tools for market analysis.
cTrader Copy allows you to copy the trades of successful traders. To do this, you need to select the trader whose transactions you want to copy, top up your deposit, connect the signal and start making a profit. The cTrader Copy platform provides a large selection of signal providers. You can view the trader's statistics, including the duration of trading, the number of investors, the volume of investments, the size of maximum drawdowns and profitability for various periods.
CopyFX is an investment platform from a reliable broker RoboForex for copying trades of successful traders. More than 1000 signal providers are represented in the CopyFX rating. You can sort the rating by profitability (in dollars), profitability (as a percentage), maximum drawdown, trading period, number of investors and transactions.
Is it worth using social trading?
The foundation of trading is learning to help you avoid mistakes. Keeping these tips in mind, you will be able to minimize your risks, pursuing the goal of making money on social trading.
Every trader, whether a beginner or a professional, should always remember that past performance is no guarantee of future earnings, and therefore copying other people's strategies, no matter how experienced a trader, does not guarantee that you can make money on social trading.
As with everything related to trading, you need to be careful and always have your own trading plan that matches your capital profile and risk, even if you later apply other strategies.
On the other hand, social trading is a good way to practice making contacts with other traders, learn about other points of view, discuss strategies, etc. However, this is not the only way to interact with other professionals, since you can do it at seminars, online training or at special events.
If you want to start trading, you can try to open a free demo account and try your hand without losing your capital.
Read also the article "What are Forex trading signals?".