Trading and investing in the forex market has become lucrative and very popular for most traders amidst the struggle by some traders to make substantial profits. This can be attributable to the advent of internet trading on mobile phones, less margin requirements, and more profit tendencies.
The advantages Forex trading offers have led to several modern methods designed especially for traders who are amateurs or may not have the time to analyse and monitor the market before taking trades. One key example of these modern methods is “Social Trading”. The good thing about this method is that most forex brokers have added this to the many services they provide. In this article, we will explore the concept of social trading and the benefits it has on your trading journey.
History Of Social Trading
Humans are popularly referred to as social beings since men love living together and enjoying life in organized groups known as communities. In centuries past people have been coming together to find and discuss business opportunities to enhance their trades. Some do come together, and pool their funds together for investment purposes. From the 20th century especially, many of such began emerging across the globe. Members of such investment clubs put their funds together to purchase stocks, etc.
The discovery of the internet revolutionized the activities of these investment clubs in that e-commerce was birthed. The members of these groups now communicate mostly via the internet instead of necessarily meeting in person or writing letters which may be time-consuming. The leaders or experienced traders amongst them would send buy and sell signals to their fellows via emails. In like manner, emails are sent to close trades when the time is due as well.
This became the norm until brokers and other investment companies launched what are called social trading platforms. These platforms create an avenue for customers to watch and copy the trades of experienced traders usually for a fee.
Nowadays, many pro traders use WhatsApp, Telegram, and Facebook social media platforms to form these clubs often called VIP groups. One is allowed into these groups after the requirements are met. Some require traders to register with their brokers taking advantage of the concept of introducing brokerage deals whilst others would require their members to register for a fee.
What is Social Trading?
Social trading is the term used to describe the phenomenon whereby traders interact with other traders during their trading decision-making. Nowadays, Pro traders combine social media with real-time online trading to discuss their trades and strategies with their members. Some traders copy exactly the trades or portfolios of professional traders. The process is normally called copy trading forex trading circles.
Brokers now create platforms allowing experienced traders to allow novice traders or busy traders to copy their trading strategies whilst making a profit from these transactions. As social trading is becoming increasingly popular, brokers are making a lot of money from the large volumes of trades it affords. It is also believed that social trading shortens the period it takes for an amateur trader to become a pro.
Copy Trading vs Social Trading
Having already considered social trading, let’s discuss the concept of copy trading so we can compare them appropriately. Copy trading is a trading concept in which a professional trader’s positions are copied by another either automatically or manually. It is mostly a practice of traders who are new to the forex market or need more time and expertise to analyse the market.
- Social trading is much time-consuming as compared with copy trading in which time investment is low.
- Whilst social trading is the mother or umbrella concept Copy trading is a part of social trading.
- Copy trading favours or is more suitable to beginner traders whereas with social trading intermediate knowledge is necessary
- Copy trading can help traders avoid mistakes and losses while building connections and gaining experience through social trading.
Advantages and Disadvantages Of Social Trading
Advantages
- It helps build a community of traders enabling the discussion and sharing of ideas and supports each other.
- Social trading helps new traders easily and quickly bridge the gap of knowledge between them and the experts.
- These platforms provide access to several financial markets like the stock, forex, cryptocurrency, and commodity markets thereby enhancing diversification.
- The incorporation of automatic trading simplifies the replicating of the trades of expert traders by amateur traders.
- It allows inexperienced traders to make better-informed decisions by the provision of transparent performance data and statistics of experienced traders,
Disadvantages
- There are transactional fees involved which may consume your profits.
- Just as it is profitable, losses are inevitable, especially if the traders one follows make poor decisions.
- Amateur traders who are overly dependent on social trading and professional traders may truncate their growth process in the financial markets.
- It is possible that some expert traders may not disclose their full strategies to the public and following them may be detrimental instead of profitable.
Engaging in Social Trading
To engage effectively in social trading there are few things to ensure. One must select a social trading platform through extensive exploration and research. Find out and follow true experts who understand and follow proper risk management protocols while monitoring their actions and observing their strategies. Ensure you regularly evaluate their performance and make adjustments where needed.
To enhance your productivity, consider following traders with different approaches to help you adapt to several market conditions. Above all, begin social trading with demo accounts to help you gain experience and confidence in the strategy of the trader you want to follow without risking your capital.
