History Of Social Trading - Birth and Evolution
In order to understand how social trading is slowly becoming the future of financial trading, we must understand its history and the process that led to its evolution.
To begin with, let’s know what social trading is.
Social trading is a trading method where novice traders follow and copy the trading signals and strategies from experienced traders and signal providers.
It’s like a social network but for traders to exchange trading ideas, tips, and strategies.
You can read our in-depth article on social trading for a deeper understanding. For now, let’s focus on the history of social trading.
The Earliest Form of Social Trading
The social trading history in its earliest forms happened through emails. Yes, emails and newsletters paved the way for modern social trading platforms.
Emails would serve as the medium of communication when traders wanted to close or open a trade.
The expert trader would send an email to other traders to open a trade. And the other traders would follow suit.
When it was time to close the trade, a similar email was sent. In this way, the earliest forms of social trading were conducted.
Nowadays it is impossible to imagine social trading via email. It has evolve quite a lot and we will discuss this in the next section.
Evolution Of Social Trading
Even though emails were sent instantly, there is a considerable time difference between a trader typing up an email, sending it, the receiver receiving the message and finally reading it.
The whole ordeal may take a minute or two, but in the world of trading, even seconds matter. By the time the receiver opens a trade, it may be too late, or even counterproductive.
This led to the demand for a faster mode of communication between traders. And eventually, trading rooms made an entry into the world of trading.
Trading rooms are virtual rooms where traders would join together to communicate and exchange trading information.
Here, the transfer of information happened much quicker than sending emails. The sender would type in the chat room where all the traders would simultaneously receive the message and act upon it.
This method proved to be more effective than sending emails. Other benefits included the back and forth communication and instant responses.
Keep in mind that back in those days, chat room providers would charge a service fee to its users. So social trading wasn’t free back then.
Moreover, they had to wait all day in front of the computer to receive the trading information. These two reasons further led to the evolution of social trading further.
The Advent Of Mirror Trading And Copy Trading
Traders were tired of waiting and having to pay for a chat room service. Brokers realized this and for their own needs, began to shift their interests into the social trading arena.
The eliminated the hassle of having to wait for trading signals by introducing an automated signal generating system.
The first company that offered an automated social trading platform was Tradency. In the year 2005, they introduced Mirror Trader, which generated automated signals.
Depending on the success and performance of the trader, they could host their personal trading strategy.
This could be accessed by traders all over the world. From the variety of trading strategies, traders could choose which one to follow.
This proved to be a big hit among all traders. It became famous quickly and as a result, this form of algorithmic trading was called Mirror Trading.
The method was further refined the mirroring process and allowed traders to directly copy the trades made by a trader. Hence it was known as copy trading from that point onwards.
Mirror trading proved to be useful for new traders because they didn’t have to engage in decisions such as when to open and close trades and it removed the element of human emotions when it came to decision making.
But even the mirror trading system had a few drawbacks.
The fact that traders had to get their trading strategy approved first, made the process time consuming and troublesome.
This along with, lack of social interaction between traders further demanded a need for a social platform.
The Birth Of Social Trading
Copy trading and mirror trading’s limitations are what eventually led to the birth of social trading. There was a need for more social interaction and transparency between traders.
Traders no longer needed to submit their trading strategy and had to wait to get it approved.
They could link their personal account and their entire portfolio and trading history became visible to other traders. This increased trust and transparency among traders.
In social trading, the follower can ask questions to the trader they wish to follow. The social trading platforms behave like social networks.
The difference lied in the fact that social trading platforms are primarily used for exchanging trading information.
Social trading completely revolutionized the trading industry. Any new trader could join a social trading network and start copying trades from top traders.
He can copy their entire portfolio if he wished to do so. Social trading has been improving constantly.
And it’s not just the novice traders who benefit from social trading. The expert and experienced traders make money from people copying them.
When their copiers earn profits, they earn a portion of that profit too. On the biggest social trading platforms such as eToro and ZuluTrade, the top traders have thousands of copiers and followers.
These platforms have introduced many innovative features which have attracted millions of traders to their platforms.
This article briefed on the history of social trading and the evolutionary process that led to its inception.
Social trading has come a long way from when it started. Trading platforms have now become packed with features and tools that have made trading more interactive, faster, efficient, and productive.
New and experienced traders have joined hands together and changed the face of trading scenario.