All industries and activities are evolving over time. This progress is mainly driven by new advancements in digital technologies. Trading is no exception. In 2023, except for different types of charting and indicators, you can use different trading approaches that can facilitate faster returns. Social trading is considered one of the most demanded approaches today.
Considering the rising popularity of social trading platforms, we decided to take a closer look at this method to make money on price fluctuations in different markets. Let’s discover the basics of social trading and its profit-bringing prospects.
What is social trading?
Let’s start with the basic definition. Social trading is a way to deal with one’s assets and cooperate with other market participants and the same time. This cooperation is facilitated through special online terminals listing the key data about the history of performance and revenue statistics of different strategies. These strategies become available to other traders and they can either duplicate them directly or try to improve them. In simple words, a social trading platform is a kind of social network for traders, where they have access to all the necessary instruments and are provided with the possibility to share their insights with others.
This form of dealing with financial markets and assets is frequently used by both experienced traders and complete beginners who are just entering this game. Users with some knowledge of the market can share their strategies and earn a passive income on a commission, whilst newbies can follow them and earn a fixed percentage from every successful trade. In fact, this is a good tool to practice for both categories of traders.
Bear in mind that social trading is rather a term with a broad meaning. The forms of this activity might be different. For instance, there are software solutions that enable traders to replicate the deals of others completely automatically. Such platforms are also known as “copy trading” or “mirror trading” solutions. Pure social networking is slightly different from these two approaches because it refers to cooperation, meaning once you decide to follow a certain user, you aren’t bound to copy all his trades without exceptions. Efficient collaboration is foremost about sharing valuable information in real time.
Is it working?
There were many research studies carried out on this topic that were inclined to find the answer to the question in the title. The vast majority of them came to the conclusion that social trading might be working if users use the capabilities of their platforms correctly.
Statistical data show that there’s a point in studying different factors in addition to the general history of the performance. Besides, no one should ignore the potential risks of social trading, meaning the implementation of risk management tools is just a necessary measure everyone should consider.
Can it bring profits?
The profitability of any trading strategy depends much on a trader but not on the approach itself. Thus, social trading can and will be profitable in your case if you manage to comply with the following requirements:
- following an experienced trader with good statistics;
- integration of different types of tools;
- following the general tendencies in the financial market;
- working on a reliable and safe terminal with precise quotes and fast execution of orders.
Is this approach much unique?
As far as you might be concerned, to succeed in the financial market, you should carry out different types of analyses. This should involve research on both technical data and fundamentals.
Social trading features make this much easier for you. This helps you to find out how other traders act and how they respond to different challenges in the markets. Thus, it adds more power to the decisions you’ll make while carrying out your analyses.
However, there is one feature that makes social trading somewhat unique compared to other approaches. We refer to the copy trading feature that doesn’t require any background knowledge from a follower. They can just link their account to more experienced fellows and earn a certain percentage.
Are there any pitfalls?
Obviously, nothing can be perfect. The popularity of this trading method cannot hide some objective disadvantages.
Foremost, we mean that social trading platforms display a lot of strategies and not all of them are created by professional traders who understand how different markets work and how to take advantage of them. That’s why risk management should be a priority for everyone entering this niche.
Also, not all providers of social trading services have enough legitimacy to offer such assistance. That’s why you should always consider the regulations of platforms and pay vast attention to security measures they implement to protect your funds and sensitive data from potential fraudulent access.
On the whole, social trading has more advantages than pitfalls. If you manage your account wisely with the consideration of our tips, you have a great chance to succeed.