For the past few months, I have been running an in-depth experiment on social trading. I have made a few pips here and there, and some losses too. But the greatest thing is that I have learned a lot that I didn’t know.
Social trading is what happens when you combine elements of social media with forex trading. It allows new traders to observe, learn, and copy trades of the most successful traders on a platform.
A few forex companies (such as etoro and Zulutrade) have integrated social trading in their platforms. In return, they have reported a spike in the number new client acquisition and retention. This is because Social trading features keep clients engaged. Imagine trading on a platform that allows you to see what other traders are buying or selling? Would you ever want to leave?
A look at data obtained from Leverate, another popular social trading platform, reveals that social trading significantly reduces the learning curve for beginners and increases their profitability.
In fact, Ronald Mwiti, who was one of our forex training students, advanced to the list of top forex traders on etoro by copying what other traders were doing.
Personally, I first heard of social trading a few years ago, but I never paid that much attention to it.
Because I have always wanted to do all the hard research and market analysis for myself. That way, if something went wrong with any of my trades, I would only have myself to hold responsible.
Then, I was doing so well using a foolproof trading system that I developed. I was doing so well that I thought I could give myself some time off to indulge in an expensive hobby.
And what other better hobby beats being in social media. Etoro has been referred as the Facebook of Forex Trading, and whoever gave the platform that name was right on point.
So, What is Social Trading?
Social trading is an approach to forex trading that allows you to see and copy what other traders are doing.
Traditionally, successful traders guarded their positions and trading strategies fiercely. In fact, way before the advent of the internet, only a few individuals knew about online forex.
When online trading was popularised a few years ago, the only way you could trade forex was through fundamental or technical analysis. Although there is nothing wrong with technical and fundamental analysis, they are both complicated strategies that confuse most new traders.
But things have gradually changed over the past few years.
The world has slowly but surely become a small village. Social networks have made communicating with friends, relatives, and strangers just a click or a tap away.
You can think of social trading and social forex as the biggest leap in social media for traders.
Such trading combines aspect of social media such as updates, following, and friending, with the core aspects of forex. Unlike with technical or fundamental analysis, trading decisions are crowdsourced within the community.
In social trading, information is generated by other users on the platform, therefore removing the need for newbies to learn complicated analyses strategies. And just like in social media, information is shared in real time, allowing new investors to watch and replicate the trading decisions of experts.
How Does it Work?
To help you understand social trading better, let us take a hypothetical example of what would happen on social media, say Facebook.
If you learn from a Facebook friend of yours that a company is about to release or acquire a new startup, this is certainly bound to skyrocket the shares of that company, which means that the best time to get in on the stock is now.
Still on Facebook, another friend mentions a managerial conflict is brewing in another company. This will certainly dip the shares of the company. If you had bought their shares, you’ll most probably want to dump them now.
I hope you get the picture.
But what you get on Facebook might not be reliable. And Facebook is not specialised for such information.
Now, imagine being on a platform that only shares information on forex trading, in real time?
But the beauty of social trading sites lies not only in the information provided, but also in the fact that you can see the historical trading data of the person providing the information. You can therefore tell how reliable they are.
You can get information on different other places such as Google+, Twitter, forex forums or from a premium forex signal service, but there is no way to prove the legitimacy of such information.
I’d therefore recommend you to use social trading sites, if you intend to trade using third-party generated information.
Getting Started With Social Trading
Sign up on a social trading platform
You’ll need to sign up on a social trading platform. There are quite a number of them that have sprout up in the past few years. However, the most popular and reliable ones included
- and Copyop.
Following a trader
Once you have signed up in a social trading platform, take time to explore through the different expert profiles on the platform.
If you find a trader that pleases you, and is constantly profitable, you can choose to follow him or her.
This way, you’ll see his trades, comments, and more of his activity at all times. Following an expert helps you learn from him, and if you do not understand what he is saying, you can always ask him to clarify for you.
There is a lot that goes into choosing a trader to follow. However, I’d recommend that you follow a trader who communicates with the community on the platform. By doing this, you’ll be able to learn a lot faster than you’d otherwise do.
Of course, if the community is a large one like the one in etoro, the trader might not be able to answer all the questions and comments. Don’t act like an entitled aristocrat.
A truly social trading platform puts social interaction features upfront. Many of the social trading platforms that I mentioned above allow users to exchange messages via a private inboxes.
The social features mirror those of Facebook, Twitter, and LinkedIn.
Make use of these social features. There is a reason why they are there. Ask questions where you don’t understand. Like with any other social media platform, the more you are active in there, the more you’ll gain. In short, don’t be an introvert.
Can you make money with social trading?
It is good to be sceptical, especially where money is involved. So, how plausible is it for a beginner trader with zero experience in trading to register on a social trading platform, and make money from just copying other traders?
Yes. Social trading increases your chances of profitability. You’ll be more positioned to make money with social trading than with conventional trading.
However, while social trading is fairly easy to implement, it is not without its drawbacks.
- Many of the social trading platforms will allow anyone to become a ‘leader’ and have their trades available for others to copy. So, how do you choose the leader to follow? This is a topic for another day, but in essence, you want to copy traders who have a history of successful trading.
- Social trading fosters a culture of laziness and lack of responsibility. To become a successful investor in any market, you have to
Would you like to try a trading on a social trading platform? Open a demo account on etoro.