Social trading is a perfect fusion of social networking with investment and trading platforms, shaping the modern investing landscape fundamentally. Why spend countless hours developing a trading strategy or an investment plan when you can outsource it to professionals? Years ago, it would take tens of thousands of dollars to use these services, but modern technology allows almost anyone with just 50 dollars to use the service and replicate the performance of professional investors with almost zero effort. Let’s analyze why and how social trading is the future of investing and how it reshapes modern investing.
What is social trading?
At its core, social trading is a community-based method where traders interact, discuss &share, and observe each other’s performance. Social traders, therefore, are individuals who share, follow, and replicate trading strategies in a social trading platform. Similar to social trading is copy trading, which is a subset of social trading where your account automatically replicates/ mirrors another trader’s trades. Social traders can observe their favorite traders and try to learn what they are doing, and only then copy their strategies. Copy traders just select a copy trading provider, set a balance, and forget.
Social trading versus copy trading
The key differences between social and copy trading are that social trading allows interaction, observation, and optional copying, while copy trading is automated replication without interaction. This automation is both a pro and a con of copy trading, while social trading is undoubtedly more flexible.
How it changes investing
Social trading is transforming the modern investment and financial trading landscape. Experts from pivozon.com say that it enables investors to get access to advanced trading and investment strategies at a fraction of the capital.
Democratizes knowledge and access
Social trading is breaking down barriers for beginner investors with low capital. While previously successful strategies and market insights were costly and only the wealthiest could afford them, modern social platforms allow even the most novice investors to observe, follow, and even automatically copy trades of pro traders. This was previously impossible for the beginner. By watching successful traders’ trading routines, beginners can learn practical trading skills like psychology and risk management.
Performance is visible
A social trading platform enables traders to see the proof by accessing historic performance on live accounts, current holdings, risk scores (drawdown percentages), and trading activity. This is critical. While fake gurus share various trading nonsense and can not prove their performance, social trading platforms show which traders are successful and what they are doing to achieve it. This way, traders can filter noise and select reliable strategy providers.
The rise of copy and mirror trading
Social trading paved the way for the copy trading craze. Practically anyone can invest several hundred dollars and trade on autopilot, which would have been a sci-fi movie scenario a few years ago. Followers can easily diversify by copying multiple traders with different styles, like Forex, crypto, long-term holding, and so on.
Encourages collaboration and community
Social trading encourages beginners to socialise, share, and receive information from other traders. This is very important in financial trading as this sector is the most practical sector and theories mostly fail. Social trading platforms facilitate discussions, idea sharing, strategy debates, and sentiment analysis and investors can tap into the wisdom of the crowds for better decisions.
Changes the role of experts
Success is directly measured by a transparent track record, not just credentials or institutional affiliation. This is crucial in financial trading, as many fake gurus are trying to sell their holy grail strategies. Instead, traders can see and select truly profitable systems.
Increases retail participation
Lowering psychological and financial barriers is possible through the social aspect, and since anyone can start copying reliable strategies, retail investors feel confident. Lower financial barriers also increase retail participation in financial markets and many social platforms also offer leaderboards, achievements, and other social features to increase engagement.
Impact and issues of social trading
Despite its many benefits, social trading comes with its unique challenges as well. Let’s briefly list the pros and cons of social trading to address core challenges.
Positive:
- Empowering retail investors
- Accelerating financial education
- Promotes transparency
- Offers diversification opportunities
- Creates opportunities for the skilled
Risks:
- Amplifying market bubbles and crashes through increased retail participation
- Over-reliance on copy trading makes it more challenging to develop your own ideas
- Gamification pitfalls related to encouraging excessive trading or treating investing like a game
In the end, social trading can provide a true opportunity to generate income while outsourcing financial trading and investing decisions to professional traders. However, over-reliance on those systems can make it more challenging to develop your own skillset.
