What Is Social Trading? (2024 Guide)

When it comes to trading, there are various platforms and services. For example, social trading.

If you are uncertain what social trading is exactly, then read on for further information about social trader tools, social trading platforms and social traders themselves.

Social trading is a popular way for an online investor to count on user-found data content gathered from various web-based sites and use it as their primary source of trading information.

It comparable to a social network for traders, therefore.

Investors will be able to analyze data and compare copying techniques and trades used by other traders.

This can be helpful for both novice traders who are learning and tenured traders who want to compare more financial information before they make an investment.

It also gives you the ability to trade in automated ways, such as social copy trading.

This lets you replicate the trading actions of a professional trader, either manually or automatically. This will allow you to benefit from their know-how and learn trading strategies.

Your trading account will follow the experience trader’s account bit by bit, whether you are going long (buying) or short (selling).

It can be classed as copy trading, which is very similar to social copy trading where you will copy trades and the process.

Seen as subcategories of online social networks, social traders can mix their own decision-making with other social traders looking to do the same thing.

It is a social way to trade, some might say. It can make traders feel like they are not alone with the decision-making, especially when they feel more hesitant about particular investments.

This will give traders a more in-depth analysis of the markets and the financial information surrounding a trade before their investment.

Social trading is part of a market trend toward open information.

Commodity, stock and currency traders have kept their trading insight close to their chest in the past.

A new wave of information-sharing techniques allows others the chance to make capital by copying or sharing their actions, however.

It is still common for many investors to want to go safe when investing money and social trading is definitely the way to begin fund management.

It is particularly popular among younger users who might need a little helping hand.

The History of Social Trading

It is thought that social trading starting around 2010. This might have been known as Email trading signals.

An email trading signal was created when traders discovered they could financially benefit by informing other investors about previous transactions they had made, thereby selling their own knowledge.

This was normally done through email signals; however, social networking platforms have grown over the years; therefore, so have the platforms for social traders.

These early traders built up a small, dedicated following, whereby they would send email alerts to each of them through their computers at home.

They were fondly known as signal providers who would help others replicate their own trades.

The benefits of trading like this are more for long-term traders than it is for short-term traders.

This is because the turnaround of receiving the email and logging in can take quite a bit of time, which means it can sometimes be redundant for traders that work during the day.

Therefore, when the original form of social copy trading was formed, it was only successful for medium and long-term investors.

Types of Social Trading

Chat rooms were another platform traders could count on. Once time had passed, and technology evolved.

New and reigning traders alike would go to an online chat room to discuss trades and get the information they needed to copy trades instantaneously.

This made it easier for short-term traders to get the information quicker than it would be via email.

Mirror Trading

A kind of 'what it says on the tin' type of trading, mirror trading started in 2005 when a system was created that automatically replicated trades from expert traders.

The process was called 'mirror trading' and made the journey quicker for traders to replicate trades, as they did not have to do this manually. Just like a mirror, the trades were reflected bit by bit.

Copy Trading

A popular form of social trading is known simply as copy trading. This is when a trader’s position is copied by another investor’s account.

Trades can be copied when opened or closed and can be done either automatically or manually. It is up to the user how to decide to approach the trade.

We would recommend doing your research before starting a copy trade.

It is imperative users know the risks on the market before trading. Just because you are copying someone else’s trade, no matter how experienced they are, does not mean said trade will be successful.

How Does Social Trading Work?

How exactly does social trading work today, especially when tech has come on leaps and bounds in the past decade?

Social trading allows newbie and skilled traders to imitate each other's transactions and discuss techniques concerning how they make their trades by enabling quick access to financial markets.

This is an education for beginners.

Advanced technology and platforms have simplified the process of the years, which has made it easy to become a social trader nowadays.

Either use a comprehensive social trading platform or opt for just taking on more precise elements of the process.

As with most social networking platforms, several platforms are more beneficial for others, and particular traders just prefer them over other platforms.

Various investors may prefer to work with a fully integrated platform, which means it helps to share trades.

This can use strategies like copy trading and mirror trading.

Like social media networks, some platforms will even allow users to subscribe to more experienced traders' channels, similar to YouTube.

This means they will have access to new content and material as soon as it is delivered.

Sometimes, the subscriber will even be able to view live feeds of trades so they can do it in real-time.

But what do experienced traders get in return for sharing their trades and their strategies?

They are often rewarded financially or with status; therefore, they will become known in the trading world for their trades and knowledge.

There is even a leader board where each trader will rank in order of their popularity and success.

If you do not want to use a specific social trading platform but still want to follow the process's core principles, you can keep control of your trades while being informed or indicated in some way.

This means you can use your own knowledge and make your own decisions but are kept abreast of analytics and the activity of other traders.

Advantages and Disadvantages of Social Trading

Although it might seem like a good idea for beginners, as with anything trading related, there are advantages and disadvantages of social trading.

Advantages

• Increased market accessibility – Being a social trader could help you understand what is and is not changing in the market. Because you will be discussing developing trends with other traders, you will have more market access. Therefore, something you may not be aware of could be discussed in a social trading context, giving you access to new markets and knowledge.

• Learn and follow experienced traders – As mentioned above, social trading is an opportunity for beginners and mid-traders who want to learn and gain more experience from pro traders. It also helps teach newbie investors how to strategize when it comes to planning trades and decision making.

• Share knowledge – Sharing information is good to others and advantageous for you if you want to improve your position in the field and earn more money with trading on the side.

• Earn revenue – You can earn extra money. This is a good way to make money alongside trading. It will also provide status and help you gain additional capital.

• Can alleviate emotional trading – When you are social copy trading you are, in theory, just copying and gaining knowledge from experienced traders. This can help provide relief for some traders and can remove the problem of emotional trading.

Disadvantages

• It might be difficult to identify successful traders – Since there are only a few consistently successful traders, following the incorrect trader on social trading networks might result in losses rather than the anticipated rewards.

• Too many platforms to make a decision – This may not appear to be a significant drawback; however, the trading sector has no shortage of social trading platforms. With so many options, it may be difficult for traders to choose the best one for them.

• Risk – There is always a degree of danger in most sorts of trading, especially when spending funds and making judgments.

The majority of copy traders will not be scammed; nonetheless, there is a chance that you may come across a scammer's account, which might financially disturb you.

Although this does not occur frequently, it is always important to consider. Another danger is ensuring you are following the experienced traders and making an informed judgment when copying their trades.

Knowledge plays a big part in whether social trading is beneficial to you. Start small and gain as much experience and information as possible so you know the ins and outs of a trade before you copy it like for like.

What to Look For in a Social Trading Platform in 2024

What is it you need to look for when you are choosing a social trading platform?

Intuitive Interface

This type of interface is designed to work the way you expect. Therefore, it does all the thinking for you, so to speak.

This is perfect for newbie traders as the platform can recognize their needs from the start. It also means it is easy to use, which is beneficial for novice traders.

Markets and Assets

You must make sure the social trading network you select covers the number of assets and markets you are looking to trade in.

Some people do not realize a platform can be limited; therefore, you must do your homework before and decipher what type of trades you want to do.

Large Social Network of Traders

In the trade sector, reputation is extremely important. If a platform has a significant number of traders signed up, it could appear safer because there must be a rationale for the significant number of users?

This might also be beneficial if it offers a sizable number of experienced traders to follow.

Risk Management Tools

Some well-known platforms have a variety of risk management tools, which can help users identify the risks they might encounter with trades. This will be an easy to understand format, so you can be considerate before making a trade.

Research and Analytical Tools

It is also beneficial to join a social trading platform that offers research and analytical tools. This way, you can analyze past trades and research the best way to progress.

Mobile Device Friendly

This should be the case with most platforms, especially in today's technologically advanced world; nevertheless, you must first ensure that the platform is mobile-friendly.

This is advantageous for traders who make investments and engage while on the move.

Final Thoughts

Social trading might seem like a good way to start your trading journey; however, there is always risk involved.

Always do your research before joining a social trading platform.

This is a good way to enhance your trading skills; therefore, you can always use it as a learning curve, rather than a quick-fire way to make a possible profit.

WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.