Updated on January 26, 2024
Would you like to dive into the world of trading, but don’t have much confidence yet? Does not matter. You don’t have to rely only on yourself. There is one more option. And that’s social trading. In this article, we will explain how social trading actually works, who it is suitable for, and what to watch out for. At the same time, you will learn the difference between social trading and copy trading.
There are a lot of traders who don’t believe in themselves very much at first. Or they simply don’t have time, or they don’t want to spend time at the computer and search for information about what’s happening on the market. Not to mention technical or fundamental analysis. So what to do if you find yourself in a situation where you want to invest your finances, but you don’t dare to trade yourself? It is simple.
You leave it to someone else. For this, you can use, for example, the types of platforms that offer pre-prepared portfolios. Either for one-off or regular investments. Such servers include, for example, Conseq, Portu or Finax, or you can decide to go the other way and bet on social trading, o even copy trading. Both of these expressions today denote one and the same fact.
So what exactly is it about?
Social trading or copy trading means that a trader decides to trust another trader, usually a professional one. The latter is released on the given trading platform to allow other users to access his activity so that they can follow his steps in real time and copy his activity.
He doesn’t do it for free, of course. He receives a fee for this, which is usually proportional to the success of his trades. How does it work So how it works is that a trader logs into his trading account, chooses a trader he trusts and starts copying his trades.
At the same time, he does not have to immediately trust it enough to put all his savings into it. Initial investments in social trading are usually not very high. For example, on the eToro broker’s Copy Trader platform, the required amount to copy one trader is $200.
After you choose your trader and deposit a certain amount, their trades will automatically start copying to your profile. So, whatever step the merchant takes, you will automatically take it too. You will not invest the same amounts, but the same ratio of your balance. So if a trader puts 10% of their balance into a trading position, so will you.
Everything happens fully automatically, so you don’t have to intervene in the activity on your trading account. But that doesn’t mean you can’t. You have the option to follow all steps and, in case of dissatisfaction, to close a certain position. The question, however, is whether it is reasonable. Many traders, not just beginners, struggle with the fact that they get too carried away by their emotions when trading.
And then they may end up closing their trade position too early, thereby depriving themselves of a potential profit. But in order to have at least some peace of mind, you can set various conditions yourself. For example, the minimum balance to close trading positions.
The first step to successfully starting copy trading is to find a suitable broker, ideally with the necessary license, who offers this service. As social trading grows in popularity among traders, so do the number of brokers offering it.
So it is not a problem to heat up the internet and find one. We will look at specific companies that offer social trading in a moment. The moment you choose a suitable broker, you need to register with him and log in to his platform, which mediates social trading. Then you just deposit the funds, select the ideal candidate and choose the amount of funds you want to spend on copying him. And then you just watch how your trading is going.
How to choose the right trader
Do you question whether you can trust the marketers whose business you should be copying?
As with any investment, it is necessary to take into account a certain degree of risk. But with licensed brokers, you can be sure that you will not find any fraudsters among such traders. It is also in their interest for their trading to be successful. And that’s partly because they trade with their money. And on the one hand, because receiving a certain reward from the copy trading portal.
It may happen that the moment you look at the number of traders whose activity you can copy, you suddenly do not know what to do. It is definitely worth choosing based on how successful their stores are. And that in different time horizons. It is ideal to choose one whose stores show a long-term profit, not just recently. It may happen that his business strategy will only work in the short term.
But you can also choose based on other indicators. For example, depending on how high a risk you are willing to take.
- CMC Markets
- IQ Option
- Purple Trading
- Trading 212
Copy trading is a specific way of trading. And so it is not surprising that it also has its specific pluses and minuses. Among the pluses, we can include the fact that you can generate profits from trading even though you have no experience and knowledge. In addition, you do not have to constantly be in the picture and worry about fundamental or technical analyses.
Someone else will do it for you. However, it is not the case that social trading is the domain of only inexperienced traders who are not interested in orienting themselves in trading on the stock exchange. The opposite may be true. You have the opportunity to learn in real time from professional traders. And so there is nothing easier than following their steps, which you copy and learn.
On the other hand, you have to remember that you are not in control of your own trades. On the contrary, you are entrusting them to a stranger whose strategy may not be completely familiar to you. And so you have to take into account the risk that instead of profit, losses will come. Moreover, you yourself may be the source of this loss.
And that in the already mentioned case, when you exit the trading position prematurely and thereby prepare yourself for a possible profit. Technical failures on the side of the server, the trader whose steps you are copying, but also on your side can also be a risk.
In conclusion Social trading, i.e. copy trading, can bring you profits even without you actively looking for trading opportunities yourself and thinking about how much money to invest in which asset. At the same time, it can be used not only by complete beginners who do not have a deeper understanding in the trading plan in the future. But even those who are just learning.
Copy trading gives them the opportunity to learn directly from professionals by following their steps. But it is also necessary to take into account the fact that social trading does not always have to be the right choice. You may end up choosing the wrong trader to copy. Or a good businessman who may not always be successful. It is therefore necessary to approach social trading as an investment with risk, not as a certain income.