Social trading is a concept that introduces a bright nuance of usefulness and utility to the already monotonous structure of the social network. You might argue that social networks have always been useful, and you would be right. Social networks can help you increase exposure to your site, spread the message, and improve your sites rank, but even though all of these options are at your disposal at all time and certainly present a form of usefulness, they are not as direct in their functionality as social trading is.
On the other hand, copy trading allows you to directly copy the positions taken by another trader and connect a part of your portfolio with theirs. By linking your profile to other traders, you copy all of their current positions on the market, and any action they make henceforth. If they open a new trade, you open a new trade; if they close, you close; if they win, you win and if they lose, so do you. This doesn’t mean that you don’t have any control over the outcome.
Social Trading vs. Copy Trading
Social trading is a broader term and copy trading is a part of social trading. This means that copy trading can be considered a type of social trading. That being said, they are not one and the same.
Not every type of social trading is copy trading because you don’t let someone else manage your trades in an automated manner. You may use information from other traders and base your decisions on that information but if you decide to enter a trade, you are the one making the decision.
Copy trading is a very strict form of social trading that binds your account with the account of another trader. Their trades are reflected in your account. Their profits are your profits and their losses are your losses. You don’t choose to open trades, the process is automated. Although in some platforms you can manage this, while in others everything you can do is stop copying the trader. This is what we refer to when we say copy trading.
Advantages of Social Trading
Accessibility: Major advancements have been made in the field of social trading and numerous social trading networks now freely available for all traders and newbies to choose from.
Reduces your trading learning curve: Social trading allows you to follow the activities of well-experienced traders, and you learn more by watching. It’s the best way to earn as you learn by replicating the success of profitable traders.
Social trading demo accounts: Most social trading networks will allow you to have a social trading demo account by allowing you to simulate the real world of social trading completely risk-free.
Eliminates emotional trading: Social trading networks allow you the access to numerous trade ideas from experienced traders all over the globe, as this increases your trading confidence and aids in making decisions, you are able to gauge aspects such a sentiment from the crowd.
Diversified portfolio: Through social trading, you will have access to multiple trade ideas and signals allowing you to allocate your portfolio to several providers hence spreading the risks associated with individual decisions. Social trading networks also cater to multiple markets from Forex, Equities, and futures; access to different assets will also help you as a follower diversify your portfolio.
Ease of use: The majority of the social trading networks have intuitive interfaces that are easy to use and newbie-friendly making the process of copying your favorite and profitable traders easy and less time-consuming.
Extra revenue for traders: If you are an experienced and profitable trader, you can also earn extra revenue by connecting to social trading networks and providing your trades to followers for copying.
Advantages of Copy Trading
It’s helpful for new traders: People who are new to the trading market are often looking for an effective strategy that works. Copy trading allows them to see how others succeed. They can fasten on to those tactics and start making real money quickly. You don’t need to do a lot of research or even know a lot about the market to start trading right away. All of the trades from the professional you are following are traded. If they do well, you do well. The most successful traders you copy, the better chances you have of being successful.
It limits potential losses: Most traders are not prepared to handle losses very well. Some of them may be spending their life savings or important discretionary income on the market. Substantial losses could be detrimental to their way of life. Copy trading can help these traders limit potential losses by paying close attention to what established traders have been doing. Monitoring these activities closely can make a difference between a great day and a poor day in the market.
It’s a passive investment strategy: Copy trading is a strategy that doesn’t require a lot of forethought or effort. You can invest in whatever you would like. You can start right away, or you can take some time watching other investors before deciding to imitate what they do. If a certain investor is not having success, you can always move on to another investor to follow. Best of all, it’s something to do on your own time. You can trade when it’s convenient for you. Many platforms also help you manage your portfolios with expert advice and suggestions. They take a lot of the guesswork out for you.
You can manage risk more effectively: If you have been trading manually, you have probably encountered issues related to risk management. Copy trading lets investors copy as few or as many existing investors as they want. Watching what they do and following productive strategies is a great way to minimize risk while still staying ahead of market trends. Just pay attention, and you will soon be making good money in no time.
Characteristics of Social Trading
Here are some important points you should know about social trading:
Social trading is an alternative way of analyzing financial data by looking at what other traders are doing and comparing and copying their techniques and strategies.
Prior to the advent of social trading, investors and traders were relying on fundamental or technical analysis to form their investment decisions.
By using the social trading, investors and traders could integrate into their investment decision-process social indicators from trading data-feeds of other traders.
Social trading platforms or networks can be considered a subcategory of online social networks.
The ‘following’ and ‘follower’ aspects of personal trading profiles within social trading platforms have been compared to the same feature on other social networks like Instagram.
Social trading allows traders to trade online with the help of others and some have claimed shortens the learning curve from novice to an experienced trader.
Traders can interact with others, watch others take trades, then duplicate their trades and learn what prompted the top performer to take a trade in the first place.
Characteristics of Copy Trading
Image: Admiral Markets
Here are some important points you should know about copy trading:
Copy trading is a simple, effective way to earn extra income that can be put aside for a rainy day, saved for larger purchases or just to enjoy some of the finer things in life.
It’s great for new traders, as it allows you to venture into the world of finances and potentially make some profits. Even if you lose, there is no way to waste your entire portfolio and even though there are no guarantees, it’s a nice way to begin trading.
Just like normal trading, copy trading is based on looking at graphs and statistics. You need to see their strategy, how successful they are, what risk management they exhibit, and more.
By copying trades, traders can learn which strategies work and which do not work.
The way copy trading is conducted can be widely variable on the platform you choose, as you invest a part of your portfolio in a certain trader and copy all their trades in a percentage-based manner.
Social and copy trading are based on people, which means that the first thing you should be looking for in a platform is the number of users.
In most platforms, once you have established a connection, you still have the ability to close trades, open new ones, and moderate the overall outcome.
Results show that people who carefully choose their traders based on statistics and portfolio are up to 10% more successful than people who trade manually or choose their traders based on personal preferences.
Thus, you can easily make money based on their skills.
Cover Image: DollarsAndSense