What is social trading?

By siliconindia  |  Friday, 09 September 2022, 06:56:36 PM IST

Introduction

What is social trading?

This work has provided useful insights towards understanding the modern-day practice of traders coming together to copy each other's trades in the foreign exchange market today. We have further discussed in this work the advantages and disadvantages of copy trading services which is the major practice obtainable in social trading. Beginners will learn from this work the meaning of social trading and the various platforms that support this practice today. 

Meaning of Social Trading?

Social Trading is an enhanced form of trading that enables traders to copy each other's positions in the market. This form of Trading displays the historical performance of various traders connected to the trading software for fellow traders to evaluate and choose whose trades to copy. This makes it possible for beginners to obtain the same results as the expert traders when he chooses to copy their trades.

How does social trading work? 

Social Trading is usually carried out on a special platform provided by the broker for all clients trading on their platform. To participate in social trading, both the expert and investors will need to create their profiles on the social trading platform. The system then displays the performance of all traders registered on the platform as "signal providers" for other traders to see and decide whose trades to copy. A "copy" trade option is usually attached to the profile of each signal provider registered on the platform. 

The system, therefore, links the account of any trader who clicks on the "copy" trades option displayed on the profile of a given signal provider; to mirror or replicate his trades on the trader's account. This practice continues until the trader decides to "uncopy" the said signal provider.

Forms of Social Trading

There are three major forms of social trading practiced today. We have discussed them below.

  • Copy Trading: This form of trading allows traders to copy each other's trades on the same trading platform. It gives room for the trader who wishes to copy trades to select his preferred lotsize and preferred pairs to copy. 
  • Mirror Trading: Mirror Trading is a social trading practice that replicates the trades of a particular trader (signal provider) on the account of the trader who had decided to copy his trades. Here, the system opens the trades on the applicant's account with the same lotsize and amount of traders opened by the signal provider. 
  • Data sharing: This form of trading enables different traders to come together to share relevant ideas and other market updates to assist them in trading. Here traders post on the platform the latest news and analysis of the market to assist fellow traders in their analysis.

List of Ten best social trading Platforms

  • eToro Social Trading
  • Hantec Markets 
  • ATFX
  • AvaTrade 
  • Vantage 
  • IC Markets 
  • RoboForex
  • Hantec Markets 
  • Pepperstone
  • FBS
  • InstaForex

Advantages of social trading 

  • Provides an opportunity for beginners to learn from experts
  • Saves beginners the stress to trade themselves
  • Helps inexperienced traders to obtain the same results as experts 
  • Saves time and energy 
  • Provides a platform for uniting all traders on a platform 
  • Displays the performance of different traders for beginners to make their choice 
  • Helps traders to learn from each other 
  • Suitable for investors 

Disadvantages of Social Trading

  • There is no guarantee that the signal provider will remain profitable based on past performance
  • Commissions are charged for copying trades
  • Exposes one trading records to the public
  • Bears some risk to the investor's capital
  • There is none to pay for the losses should any arise
  • Some inexperienced traders could register as experts 
  • Discourages beginners from learning how to trade themselves 

ON THE DECK

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