The idea of social trading has become popular in recent years but what does it involve and is it right for you? By understanding more about this method of investing, you can decide whether to give it a try or stick to a more traditional approach.
“Stock market traders at work – buying and” (CC BY 2.0) by wuestenigel
What Is Social Trading?
With social trading, you can check out the moves made by other investors, who are normally recognized experts but can also be peers who have simply decided to set up their accounts to let other people see what they are doing. You can then decide whether to follow the strategies taken by those investors, using mirror trading or copy trading, or simply use it to build up your knowledge of the markets and different strategies.
The idea is that everyone can benefit from doing this. The investors who allow others to copy them may earn a percentage of the commission charged on their trades, and can also build up a big social media following that helps to establish them as investment experts.
As for the people who copy them, this gives a way to quickly make informed decisions. Rather than learning all about investing and studying the markets, you can simply follow an experienced trader who has a good track record. This cuts out the learning curve that could have put people off the idea in the past.
One of the keys to this method of investing is the transparency of the information and the ease of access that users have to it. Everyone needs to be able to very easily see the history of the traders that are available for following, and fully trust the numbers that they see. This study from https://yahoo.com suggests that social trading could be the key to wider cryptocurrency adoption, as it makes it easier to get involved in complex investments.
Are there any drawbacks to social trading? Some research, such as that carried out by https://moneyweek.com, suggests that it may increase the risks that new investors take, as they feel that they have a better chance of earning a profit in this way and take on riskier assets or invest more money than they would have done on their own.
How Can This Be Done?
Not every trading platform lets you carry out social trading, so you need to look for one that gives this option. eToro is regarded as one of the pioneers in this area, as they’ve been offering social trading since 2010. It’s listed on https://investingreviews.com/ as a featured broker, with a $10 minimum deposit needed for new investors to get started here.
The number of social trading options has grown in recent years, as new platforms enter this market. While they offer essentially the same process, they vary in terms of areas such as the number of traders they offer and the commission that’s charged on each transaction.
In theory, social trading can be carried out on just about any type of asset, but some sites focus more on stocks or cryptocurrencies, for example, while others provide the possibility of doing this on currency pairs in the forex market or on other types of investment.
Social trading has become a big business in the last few years and we can expect it to continue to grow in the future. While it isn’t right for everyone, it’s a useful option for anyone who is new to trading and investing or doesn’t have the time to carry out their own research.