Social trading is the latest trend to invest in financial markets. It’s an easy idea of following the trading ideas of experts in the field. The investors share their ideas of trading the markets – then others follow these user-generated financial studies. The popularity of social media has made it easy to share trading data in real-time, thereby making it easy to follow by others. Copy Trading is one of the widely used forms of social trading and provided by several brokers and third-party platforms. Read more about Copy trading, Copy trading Review and social trading ahead.
Simplifying the way people invest in Forex Market – Social trading
Since the start of online trading, the social aspect of online trading has become a natural and compelling alternative for people looking for alternatives to easy earnings. Social trading has gone through a number of changes along with the rapid change in technologies over the years. At this point, we can say that all the forms of social trading in the Forex market are here to stay.
It offers an easy path for beginners to achieve some success in the financial market and helps them learn how profitable traders deal with the market.
There are various online services created solely on such user-generated financial trading data. These services operate based on different business models. Based on the study, about 80% of online brokers provide some or other form of social trading. Indeed, social trading has penetrated the whole industry from the ground up.
The basic form of social trading comes in the form of groups on social media – in the form of signals. These operators have developed an entire business based on social communication among traders on their own trading platforms.
Recently, chat-based workgroups providing trading signals have come up with uniquely developed and invented platforms, enabling members of such groups to advance in the financial trading beyond a never-before-seen level.
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The Benefits of Social Trading
The charm and top-selling feature of social trading are that it produces a variety of combined relationships between those who supply useful Social trading data and those who use it.
With the correct sort of copy trading approach, the follower traders can good money without getting into the complexity of the market analysis. The expert traders can benefit not only from their own trades but also for being followed too. The broker will reward successful trade providers financially, either by enhanced trading conditions or by paying direct commissions.
The trade followers following Social trading find two-way benefits. First, this simple way to invest can get good returns. Second, followers can learn trading skills from the traders they follow. Heeding others can give a great learning chance. However, the success of the followers depends on picking the right social traders to follow.
What are the different types of Social Trading available?
Copy Trading – The widely preferred type of social trading is Copy Trading. It is all about following the trades of one or a group of expert traders either automatically or manually. The trade followers have their accounts connected to the accounts of professional traders to copy their trades at a preset ratio. The trades of the expert traders or trade providers are then automatically copied and the followers get results similar to the experts’ account.
This kind of social trading needs no information on the part of the participant, which defines its reputation. The investment amount can be tailored depending upon the follower’s investment. So an expert Forex trader using over $10k capital can still be successfully followed by an amateur investor investing just $1k or less.
Social Sentiments – This type of Social Trading feature shows the sentiments of the traders on the broker’s platform. It is shown as a percentage of people BUYING or SELLING a particular underlying asset. Some brokers show it as BULLISH and BEARISH sentiment by segregating the activity of traders on their platform on a particular tradable asset. The followers of this type of Social Trading feature just go long or short as per the trend presented by the broker. The traders or followers should always stay away from following this kind of social trading data due to the following. 1 – The majority of the traders lose money, hence you can’t just invest following the sentiments of the majority traders. 2 – The brokers sometimes manipulate this data to drive traders to invest in a particular direction to gain the advantage.
Copy Trading has seen rapid growth since its inception. Along with the growth of social media and various messaging platforms, the capacity of fast knowledge sharing, copy trading has gone a long way. Copy-trading as social trading, as defined above, enables expert traders to share their trading ideas instantly, and followers follow it almost immediately. Those followers can also automatically follow the expert traders’ trades and earn from them.
Copy trading is known as a type of social trading. It has become popular among the new generation traders as they can copy the trades of experts, and at the same time, they can watch and learn from the expert traders. The traders can make money from copy trading by placing the same trades at the same prices as the traders they follow. Social trading is preferred by those traders making their first steps in the investing world. It is usually a new way to invest and learn for those who don’t have enough study of the market or past trading experience.
How Does Copy Trading Work?
Once a trader has chosen what copy trading platform to utilize to follow others, they need to find the right traders to follow. This can be achieved using different methods. Traders can be filtered by Profit, Risk, Loss, Drawdown and the assets they trade. You can even try to search for traders having good long term results, or short term results.
The brokers offering copy trading provide an interface to compare the performance of expert traders and select to follow one or more of them. The interface guarantees to open the same trades in the like that in the provider’s account. You have to pay a monthly share from your profit to the expert trader whom you are following. The performance fee is usually from 20 to 50 percent from the profit. Once configured, every time a new trade is opened or closed, the follower will also have the same trade opened or closed at the same rate. The follower can set the trading volume for following each trade depending upon his investment capital.
Traders can choose to copy several different people as they like, and follow all of their trades. Of course, they still have the freedom to close trades manually or end the copying collectively. The follower has no commitment and is in full charge of his investment.
Who can make copy trading?
The social trading feature in the financial market attracts a wide variety of investors. It offers the investors to make money by flexibly following other traders. These are the three different types of traders and how they make the best use of a social trading feature. Most of the traders fall into one of these kinds.
- Traders looking to follow others who are experts – These types of traders have knowledge and experience in the market, and they want to follow the best traders to make money with reduced risk to capital.
- Inexperienced traders looking to make money – These types of traders have no or little experience in the market. They are learning how to trade and succeed in the financial markets. They want to copy experienced traders, make profits from it, and at the same time, learn from the expert traders’ trades.
- Profitable traders looking for more profits – These types of traders are not new to the Forex market. They have already earned profits in the market and want to earn more. They do so by following more than one expert trader to make money while diversifying their risk.
Although social trading or copy trading looks promising, it has its own risk. The level of risk may vary but it can not be eliminated by going for copy trading. Some experienced traders follow social trading just to diversify – in case they lose money from their own trading then social trading may save them.
There are many Copy Trading providers having delivered decent returns consistently, but the followers must observe caution while following them. The traders must observe strict risk management and should not set to trade big lots while following expert traders’ trades.
There are cases of conflict of interest while following the copy trading feature provided under the same broker, as the brokers don’t want more traders to stay profitable. Hence, you should use a third party copy trading service to avoid any conflict of interest with your broker. Following the third party, copy trading is legal and easy. Zulu Trade, MyfxBook, and Signals from MQL5 can be used with any broker to copy trades with flexibility.