Social trading platforms enable novice investors to copy and execute the trades of fellow experienced traders present inside their trading network. Here the traders rely on financial information provided by other experienced users to make their trading decisions rather than using the traditional tools of technical analysis or fundamental analysis. Social trading is being used extensively with Forex currency trading and binary options trading by beginners who lack market knowledge.
Social trading platforms have become popular since their advent from early 2010 and they allow traders to interact with other users, monitor or duplicate their trades and also learn from their mistakes. By allowing users to copy the trades of successful traders, social trading platforms make the job easier for newbies. Also it helps to reduce their learning curve from beginner to experienced trader by quickly adopting the trading strategies of top performers.
How it works?
Users first register themselves with a social trading platform and open a trading account. Once they become a member of the social trading network, users can view the live feeds of the trading activity of various experienced users. Also the top performers are ranked based on their success percentage, trading time, amount won and various other parameters. So users can decide which traders they need to follow in order to become successful. Beginners can gain valuable insight of the current market trends, generate new trading ideas and effective strategies by watching and monitoring the trades of other experienced investors. You can also get in touch with other experienced traders through their personal profiles and discuss with them if required.
The most useful tool of social trading is the ability to copy and execute the trades of other experienced traders. Also the tool provides full control over your funds and you can set stop-loss orders, pause or resume the copying activity and unfollow any particular trader if you feel that his/her strategy is not working out for you.
The important advantage of social trading is the free flow of information between the traders which is very crucial to understand the market trends effectively. Some social trading platforms also allow users to work together as teams which are very effective for beginners. They can form a trading team together and pool funds from the individual investors. They can work as a team in collaborative mode and divide the research for different sectors among themselves. They can share the knowledge later with other team members and this will minimize the effort required for each trader and also maximize their chances of success since each user will contribute new trading ideas and strategies.
Social trading in Forex
As we all know Forex is the biggest and most liquid financial market with daily trading volumes exceeding beyond $4 trillion. Since forex market is open on a 24-hour basis and traders can execute their trades from anywhere using online trading platform, it’s an excellent choice for beginners to make money. When it comes to social trading in Forex, users should understand the pros and cons of copying the other experienced traders. Some strategies followed by other successful traders might not be suitable for you. Hence you should continuously monitor and follow the newsfeeds of other users before making any trading decision. In forex market, some of the popular social trading platforms like investFeed and eToro publish the performance statistics, market sentiment, open positions and strategies of experienced users transparently. Since the members are offered complete access to information about top performers, it helps to ensure their credibility before making any trading decision. Also the experienced traders should undergo a strict application process and their performance is continuously monitored for a certain time before publishing their data.
Binary options social trading
Binary options are relatively popular among newbies because of the higher returns and easy accessibility. A binary options social trading platform makes it easier for beginners to invest in binary options and gain maximum returns with minimal effort. Traders can just watch, follow and copy the trades of experienced traders as per their own terms and conditions. Users will be updated with live news feeds from successful traders and every trader can share their strategies with other users. Users can find the best performing traders using the information from live news feeds or view the “Hot traders” table where the successful traders are ranked based on their performance. They can view the complete performance statistics including the open positions, past successful trades, success ratio, amounts invested for each position and highest gains, etc. They can also view their personal profile and decide whether to follow them or not. Once they decide the traders to follow, they can choose to copy and execute their trades as per their own terms and conditions.
Whenever you plan to use social trading platforms, you should ensure that the broker is regulated and licensed by the trading commission in your region. Also you should read the reviews and testimonials of other users before opening a trading account with them.
Sources: wikipedia.org / etoro.com