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John Naronha

What is social trading and how does it work?

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Investors with spare funds are always on the hunt for prime investment opportunities, especially those which offer substantial returns at more or less predictable risks. In the financial markets, equities, currencies, and commodities come at a siren’s call for potential investors. In fact, even emerging opportunities such as cryptocurrencies are strikingly attractive, in spite of the fact they straddle the grey area and several governments have restricted their trading. The commonality between all these options is that they offer tremendous returns but also incredible risks. An ordinary investor may not have the knowledge, time, practice or patience to keep up with market dynamics. This is what stops most potential investors from taking advantage of these opportunities. Is there a solution? Yes. It is called Social Trading.     

Social trading occurs over a vibrant online platform, where successful investors share trading ideas and steps which have led to investment successes in the past. This open and free flow of information can prove to be a major benefit for an inexperienced trader. Instead of getting to the depth of complex financial models, they now have a shortcut. Newbies in the financial markets can now trade by copying profitable strategies of more experienced traders. They have the option to put forward investment ideas and filter through comments and views to pick information most useful to them. In short, it is social networking for investments. To begin, they only need to decide which investor to follow.

How do seasoned investors benefit? They can share their hard-won knowledge with the world for a fee. Also, monitoring the buzz on the platform is a great opportunity for them to pick up a useful tip or two.

If you’re a fresher who’s interested in social trading, you can start by opening an account with a verified and reputable social trading network. Some of the well-known trading networks are

  • eToro
  • ZuluTrade
  • Naga Trader
  • Tradeo
  • Darwinex
  • Ayondo
  • FX Junction

Once online, you have to take a judgement call on which investors are worth following. Generally, the metrics chosen are: Do investors have a track record of securities that are of interest to me, profit to loss ratio, drawdowns, etc. Apart from following successful investors, there are plenty of opportunities to learn because credible information from various sources are available in one place. This saves considerable time and effort. It is also much less taxing than wading through a flood of information about investment opportunities every second. In addition, it is also safe and reduces risk to acceptably low levels. Learning on the job and being active on the online platform will also keep the investor up to date with dynamic markets. This helps in portfolio diversification and spotting sunrise sectors.

To conclude, social trading platforms are an opportunity for new investors to learn and earn simultaneously. Whenever a novel investor posts profitable trades after following a successful strategy on the social trading platform, it encourages the other not so successful investors. So, it’s a win-win for all. Social trading is not a new concept, rather, it is revolutionizing the broad investment landscape.  

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