Learn What Is Social Trading And How It Works
Before entering the financial market, it is quite necessary to know what is social trading and its working process.
So far, Social trading is the fastest growing trends in the markets. The easiest way to access financial markets for new retail traders and investors. Moreover, it is an independent form of trading.
You are about to find out all the necessary things in this article. We have gathered many important factors for new traders and intermediate traders, who are little or not at all aware of this kind of trading.
Along with the basic definition, there are many other factors to be considered before you can involve in it. So, sit tight and explore the article with us.
What Is Social Trading
Social trading is a new way to enter into the financial market. The word ‘’Social” means an informal gathering, especially by the members of a particular club or group.
The word “Trading” means to exchange something for something else, typically buy and sell goods and services.
Thousands of traders trade combinedly rather than trading by one trader. The trading platform looks like other social media platforms like facebook, twitter, etc. However, the social trading platform is only for sharing all financial ideas, news, trading strategies, and so on.
As per the history, the first social trading was famous only for sharing trading knowledge and ideas among traders.
Just to have the opportunity of trading easier and manageable for beginners, social trading can be the best choice. The only thing is to choose the right expert trader to follow and copy.
This form of trading helps people to trade online and turn new trader into an expert trader within a short time. Only for its unique trading benefits, a lot of people prefer social trading as their first choice.
Anyone can join the social trading platform including new traders, experienced, and other types of traders.
How Social Trading Works
The social trading platform is famous for its unique trading benefits which we have mentioned earlier. You can share your trading thoughts and knowledge through the social trading platform.
Moreover, it is easy to receive trading signals from signal providers. You can also make money by copying other profitable strategies.
Opening an account is the first step to trade on a social trading platform. The trading account types will depend on the platform.
For beginners, it will be a wise decision to start trading with a demo account. A demo account will help them to grasp the basic knowledge of social trading.
A demo account is similar to a real account except for the risk-taking capability. Traders can practice and implement trading knowledge on a demo account.
Investors and traders can interact in the demo account too. They can even see every movement of the markets.
The platforms keep up to date about all the trading sessions like a real account. Followers are also able to see the top traders with portfolio, track record, strategies, techniques, and in what instrument they are trading.
Additionally, they can see the trader’s average risk and profit ratio. Not only the profit amount but also you can see their trading niche or asset
The networks have enabled the traders to automate their trading through allocating some of their funds to copy another trader’s activity and movement in real-time.
Finally, choose the right trader to follow and copy his/her trades.
Evolution Of Social Trading
Before coming to the social trading idea, people communicate with other traders through e-mail. So, you can consider emails as an evolutionary history of social trading.
After emails, there was Mirror trading and Copy trading.
In that time, some traders used to communicate with their followers through newsletters. At certain levels, traders mainly open and close their trade after getting an e-mail. An e-mail was sent to all other members whenever they wanted to open a position.
Finally, the trading room has appeared. Instead of sending e-mails, traders communicated with each other via trading rooms. On the other hand, traders wrote in the virtual rooms so that, other followers can read and copy.
Afterward, the evolution of the chatroom helped traders to communicate with each other through commenting and asking questions.
However, people need to sit in front of the trading device for a long time. Not only that but also, they have to pay fees for this service. After analyzing the whole situation, an automated trading idea came through some people.
The idea was that an automated trading system will copy other trader’s trade-in one platform without monitoring the emails or trading rooms for the whole day.
In 2005, one of the trading platforms has introduced the first Mirror Trading. It is an innovative trading platform that offered the unique concept of mirror trading.
In that platform, a trader would host his strategy. He could also provide a long record with performance.
If the strategy is accepted, the other traders could look on it. If interested, they could mirror or copy the strategy on their account with all transaction.
The social trading platform like ZuluTrade and Etoro came up with a new idea where traders did not have to submit their strategies and get approved to be used.
They were able to communicate with each other and would stay connected to the whole copy trading system. However, social trading is still improving and trying to deliver the best thing to traders.
Why Social Trading
The easiest way of earning money is social trading. Anyone can consider as a passive income generator.
There are so many reasons for newbie and intermediate traders to get involved in this kind of trading.
The following reasons will give you a clear overview of why social trading:
- From social trading, people can earn profits. You don’t need to spend the full time in front of the trading device to analyze the financial market. It will give you the way to communicate with other expert traders.
- New and intermediate traders can learn from the expert traders about the trading systems, strategies, methods, etc.
- You can perform your trade from anywhere and anytime.
- Since it is a transparent field, everyone can see each other’s profile and the details of the trader.
- Social trading is a social interface, which also provides a community; talk to each other related to trading.
- The social trading platform offers a minimum investment.
People all over the world can conduct trading socially because it does not charge any fees or commission.
Advantages Of Social Trading
Social trading is popular because of its unique advantages. A community, where people meet and share their knowledge with other traders.
By copying a profitable trading strategy, traders can earn a handsome amount. Not only as a reliable earning source but also for other benefits, social trading is growing very fast.
Here is a list of advantages of social trading for beginners:
Learning While Earning
Traders can earn additional income from the networks by sharing their strategies and techniques. It is easy to earn money while learning to trade
Good Source For Learning
Social trading platforms is a good source of learning on trading. You can speed up your knowledge by implementing those into real-life trading.
Passive Income for Copiers
New traders can follow and copy other successful traders and earn a passive income.
It is possible to copy other traders when the market is open. You can copy another traders strategy or trading action in real-time.
Extra Charge or Commission
It is beneficial for all the traders because the social trading platform does not charge any kind of extra fees or commissions for trading.
The form of trading saves time easily. It does not take much time like traditional trading, where you must wait for the whole day and observe the trading sessions. In social trading platforms; trading is performed within a short time.
The social trading interface is almost similar to the social platform. This kind of social interface is easy to maintain. They can get everything in one place.
International Market Access
It allows every trader to get access to international markets easily. It also enables users to gain knowledge about international markets, commodities, and indices price difference.
You can easily get access to the trading platform from anywhere and anytime. It is not mandatory to sit in one place for performing trade. They can easily maintain their trading from distant places and distant times.
Be A Professional Trader
Improve your trading skills with the help of social trading. People invest more money to be a skilled trader. The platform will give you an opportunity to learn from different expert traders.
Disadvantages Of Social Trading
Like everything else, social trading also has some disadvantages.
All the people all over the world are gathering in one platform and sharing their knowledge. For that reason, no one knows whether those strategies or methods are true or not.
By implementing a proper trading strategy, only a few get to succeed in trading. You can lose money by following the wrong trader. So, it is wise to judge before copying a trader.
However, the hardest thing is to choose the right trader.
Remember, you will fail to earn money if you choose the wrong trader. On the other hand, you must avoid scammers.
You can check the best social trading platforms and social trading networks article to know which platform is the best choice for you. There are so many platforms and networks that provide social trading service.
Traders who are new in this field, often get confused with the trading platform. Some platforms even offer rewards in return for joining them, but in most cases, these platforms will not guide you for risk management.
Moreover, social trading makes traders lazy. After trading in the social platform, traders ofter try to avoid market research.
Things To Do Before Social Trading
Through a social trading platform, traders can interact with one another. However, the trading process is simple but, it requires minimum knowledge of the financial markets.
Moreover, you need to keep a few things on your mind before starting social trading.
- Will you trade socially?
Trade socially means you want to trade on your own using the information from other people. Basically, you will be using real-time views and sentiments to take your trading decisions.
- Copy other traders
Copy trades are for those traders who don’t have enough time to analyze the financial market. By copying other traders trade, you can easily earn money without trading by yourself.
- Be copied
Another way to earn money by sharing trading signals on the platform. You can also share your trading signals after becoming a proficient and successful trader. From the above categories, you can go step by step to make your trading comfortable.
It is really hard to make money without having a minimum knowledge of trading. Remember, never invest money which you cannot afford to lose. You can start social trading, either using a demo account or investing with a small amount.
Invest your time and knowledge to make yourself as an expert trader.
If you think you are impatient, then don’t start. In trading, it is necessary to have patience. Invest your time to educate yourself for being a successful trader.
It is wise to avoid new and unverified users. However, it doesn’t mean all new traders are bad.
But, it is better to take prevention. Find a better social trading network which is the best suits for you.
For selecting a platform, it is necessary to keep a few things in mind:
- Are they providing a demo account or not?
- What is the minimum investment amount?
- Trading application available or not
- Is there any risk management or not?
Trading bears high risk no matter, how good you are in this field. For that reason, experts always suggest traders not to stop learning.
Risk management is an important matter in social trading. It helps you to determine the trading time.
It also gives you an idea of whether it a good time to copy a certain trader, or not.
On the other hand, it is proven that if you have good knowledge of risk management then, you will never enter trades with a high-risk factor. Good risk management is known as the heart of responsible trading.
Social Trading Tips
After opening an account, you can follow these tips for your trading sessions.
- If you want you can copy one successful trader or spread your money among several. However, it depends on you. See the risk level along with the track record of the traders, before you make your decision and before choosing a strategy.
- If you are interested in short-term investments, then go for the day-traders. And, if you are interested in long-term investments, then go for the traders who keep their positions open for a week or even months.
- Try to stay up to date with the investors you are following. Find out the logic behind their decisions and don’t hesitate to ask questions.
- Use virtual money to try different strategies, risk levels, and try to sharpen your trading skills.
Mirror trading allows investors and traders to copy strategies from successful and expert traders in an automated way. A trader can select a strategy from potentials which will help them to achieve their goals.
They can select strategies according to their perspectives, like risk level and past profits. Moreover, the major advantage of mirror trading is that it will remove your trading stress. Mirror trading is especially helpful for new investors.
Mirror trading also can help investors by preventing themselves from any emotional trading decisions. Traders can diversify their trading risk, by trading more than one strategy concurrently.
Copy Trading And Social Trading
Copy-trading means when a trader connects his account to another successful trader’s account. The trading process is simple.
A trader can test the trading strategy, methods, techniques by applying in different trading instruments. Same goes for forex trading too. After gaining lots of experience, these traders become expert in different trading classes.
Depending on trading profits and losses, they become successful in a particular trading field. After becoming successful traders, they shared their trading strategies in the copy trading platforms.
Fresh investors or traders will copy their trades to earn money. All the trades that are conducted by an expert trader, is copied into your account.
You will mostly see this who have some or no knowledge about trading.
Remember, in copy trading when you copy a successful trader, their profit will be your profit. At the same way, their losses will be your loss.
On the other hand, you can stop copying if you don’t want to copy a trader who is only making you lose.
Generally, social trading is different from copy trading. Most of the time people mix up these two terms.
Social trading is a platform where investors and traders communicate with each other. In a social trading platform, the facility of copy trading is enabled.
A trader can view the expert trader’s portfolio, risk ration, profits, strategies, and so on. Moreover, you can interact with traders privately or publicly about any kind of trading-related topics.
Another thing is that you can use social trading as an indicator, which keeps you up to date about trading and helps you to make decisions.
In conclusion, after going through this article a new and intermediate trader can perform social trading with ease by knowing what risk he/she is taking.
We hope that you have gained the basic knowledge of the aspects of social trading.
This article will help new traders to start trading after learning all the important features, pros, and cons.
We will keep updating after researching and analyzing any new stuff on social trading for your benefit.