Nigel has been in the regulated financial services industry for nearly a decade, has previously owned a financial brokerage and has written many times for sites relating to personal finance and trading.
Trading is becoming ever more popular as people look to the financial markets to provide them with an alternative source of income. Social trading has opened up the industry to millions of people who want to make money from the markets.
So, this article will provide you with a guide to social trading by going through:
Social trading is a way of investing and trading the financial markets without having to do any of the work yourself.
It allows traders and investors to copy the trades of other successful or more experienced traders without having to conduct extensive research and analysis themselves.
Social trading works by allowing anybody, whether they are beginners or experienced traders, to enter the financial markets by copying the trades of others and share trading strategies.
For example, if an experienced trader has a profitable trading strategy and is on a social trading platform, a newcomer to the markets can then copy the experienced trader’s trades, therefore utilising the same approach without having to do the in-depth analysis and research.
Depending on the social trading platform used, you can adjust the elements of social trading that you use on your account.
But, why would an experienced trader let someone just copy their strategy and trades? Well, the answer to that is straightforward. The incentive is that there will be a financial reward, and the trader will enhance their reputation. The more people copying their trades, the more money they will receive as a bonus and the more their status will grow.
Although they may seem like the same thing, copy trading and social trade have some differences.
Social trading is a broader term for this type of trading in general, and copy trading falls under the social trading umbrella. Copy trading is just a type of social trading.
Copy trading is just that, copying the trades of another trader onto your account. If they make a trade, so do you, if they profit, then you do too. All of their trades will be the same trades on your account. The execution of the trades on your account is automated.
Social trading allows you a more hands-on approach if you wish. It will enable you to observe the trading strategies and trades of others and use their strategy by either executing the trades yourself or using the mirror or copy trading functions.
There are many advantages to social trading. Some of those advantages are:
Of course, like most things in life, there are disadvantages, and social trading is no different. So, here are some of them:
So, let’s go through the steps you need to take to get started with social trading:
Now, there is an ever-increasing amount of social trading platforms available, and you must choose the right one for you. Make sure the platform provides all of the functions you want to enable you to utilise it successfully. Most importantly, make sure they are regulated and trustworthy!
The platforms will provide you with recommendations of traders that you can copy and learn from, but it is essential to do your own research. Research the markets they trade, the strategies they use and the risk parameters. Do your due diligence.
Finally, you will need to allocate a portion of your capital to each trader you follow. Think of this as part of your risk management. You will have researched the trader you are tracking, and now it’s about diversifying your investment into each trader. For traders with a high-risk strategy, you may want to allocate less money to traders with a lower risk strategy.
The eToro platform is the first social trading platform ever. It offers access to a wide variety of assets and an even more extensive array of traders available to copy and learn from. It is also regulated and authorised by the FCA, with a lot of positive reviews from customers online.
ZuluTrade is regulated in both Japan and the EU. It is slightly different in the fact that it is not a broker itself but provides traders with the ability to connect through the platform to find traders to copy and learn from. It works with 50 different brokers to offer social trading. They are the middle man connecting traders.
Please note you will need to set up an account with one of the 50 brokers they partner with to utilise the ZuluTrade platform.
Tradeo offers a social trading platform, but they do have fewer assets to trade than some other brokers.
However, they support the popular MT4 platform and provide an excellent platform for social trading. One thing to watch out for if you are in the UK is that the FCA does not regulate them. They are governed by the Cyprus Securities and Exchange Commission (CySEC).
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