Social Trading: What Is It and How Does It Work?

Investing in online markets such as forex, stocks, cryptocurrencies, and bonds require deep knowledge, experience, and skills. As a trader, you need to stay up-to-date with what is happening in the business world and take time to analyze trends.

If you don’t do this, you may end up losing your money in the market. In fact, a significant number of people lose their hard-earned money in financial markets due to a lack of information on how to invest. Social trading comes in handy to help investors overcome this challenge.

What is social trading?

In simple terms, social trading is a form of dealing that helps investors or traders copy and execute the trading strategies of the more experienced traders.  You can think of it as a type of social network that enables traders to interact with each other and share their strategies.

Every social trading platform is based on the idea that the collective talent of hundreds or thousands of experienced investors is better than one trader’s talent. Therefore, these platforms connect traders worldwide, enabling them to share their trading strategies, market analysis, and insights on what is happening in financial markets.

How does social trading work?

The advancement of technology and invention of new platforms has made it easier than before to participate in social trade.  With a social trading platform, you can either use a comprehensive trading strategy from another trader or adopt a few elements of their strategy.

Some social trading platforms provide users with a fully integrated social trading app that facilitates complete sharing of trading strategies using a “mirror trading” or “copy trading” feature.

As a trader, you can choose to subscribe to another trader’s channel whose positions would be broadcast on a live feed with the option to copy their strategies. This means that once you find a reliable trader, you can always replicate their trading strategies in a single click.

However, the flip side of things is that you need to be careful when choosing a trader to follow. Check their historical performance and the risk level they took to realize that historical performance.  Also, you have to find the best social trading platform to be on a safe side.

What do you need to know before you start social trading?

The most important thing you need to keep in mind is that social trading is not for everyone.  Although it has been praised for its benefits, it has also been criticized for clouding some traders’ judgment, especially beginners.

Therefore, before joining any social trading platform, keep in mind that the method doesn’t eradicate the risk of trading on financial markets. Every aspect of trading involves risk, and it is your responsibility to realize the fact that you will make losses at some point or another.

Therefore, the idea of trusting a third party’s judgment completely might not be sustainable in the long-run. Take time to learn and develop skills that will help you survive and make profits on financial markets. Don’t use social trading at the expense of learning and gaining experience.