Social Trading: A New Prospect For Retail Investors
Table of Contents
- Social Trading: A New Prospect For Retail Investors
- Stock Market Paving The Way For Trading
- What is Social Trading?
- The Early days Of Social Trading
- The Advancement Of Social Trading
- Advantages Of Social Trading
- Disadvantages Of Social Trading
- Copy Trading And Mirror Trading
- Wrapping Up
Social Trading: A New Prospect For Retail Investors
Stock Market Paving The Way For Trading
The early beginnings of the stock market date to the late 1400s. Merchants in Belgium started to buy “goods anticipating that prices will rise in order to net them a profit.” Though fundamental, it would shape the modern stock market.
With time, the stock market evolved and has led to the rise of many other forms of trading. We are in an age today where all manner of exciting trading opportunities exist. This includes social trading, a trading mechanism that makes it easier for retail investors to jump into trading and simply to copy the trades of experienced investors.
When the stock market took off significantly in the 20th century, it focused on the stocks and shares of major companies. The evolution continued to include smaller companies. In the last 30 or so years, trading has expanded to include a great deal more than stocks and shares. There are trading possibilities based on:
- time (for example, day trading, swing trading, and scalping),
- technical analysis (for example, trend or momentum trading) and,
- asset classes (examples are currency trading, equity trading, and derivatives trading).
The twenty-first century has seen the expansion of technology, resulting in more trading avenues and allowing for more significant numbers of people to participate.
What is Social Trading?
The Early days Of Social Trading
The Internet has allowed for greater connectivity, making it possible for many people across the world to communicate more easily. Before the advent of the Internet, people relied on information through traditional methods such as newspapers and magazines. To carry out trading by oneself was a difficult task. Most people allowed larger institutions to trade on their behalf. They had no access to their approach and were totally at their whim.
In the early part of this century, email started to become common. “It is thought that social trading started around 2010. This might have been known as Email trading signals.”
Expert retail traders began to offer signals through email and chat rooms. The regular retail trader could use the information and place their own trades.
Smartphones and mobile technology were not advanced, and people accessed emails and chat rooms through their desktop computers. A PC is not readily accessible everywhere and is only suited to medium and long-term trades. Short-term trades such as day trading and scalping were not feasible.
However, the advance of portable smartphone devices and the rise of social media platforms have made social trading a reality.
The Advancement Of Social Trading
Corporations such as Facebook, Twitter, and Reddit were the early pioneers in the social media world. They provided the blueprint and the inspiration for niche-specific social platforms, like those for social trading, to appear.
Basically, social trading platforms allow users to view other people’s trades and statistics, follow others, be notified of other members’ trades, and communicate and build relationships with fellow traders. The emphasis is on building a community of people with an interest in trading.
Following the trades of more experienced people makes it possible to learn trading. It’s an easier way to master trading than figuring it out by yourself. Social trading platforms enable communication with experienced traders, thus novice traders can ask questions and absorb information. Traders can also view comments and other content created by professional traders and study their ideas to become better informed.
Social trading platforms are rich with educational content, allowing further tutoring for the trader. It’s much easier than researching information on Social Media outlets or search engines such as Google.
There are so many social trading platforms available. While all platforms’ social aspects are similar, different platforms offer varied trading options ranging from Stocks, Commodities, Cryptocurrencies, Forex, ETFs, CFDs, and Indices.
Advantages Of Social Trading
Learn from experienced traders. This is an excellent way for newbie and inexperienced traders to learn techniques from people with more significant experience. Such an approach decreases the learning curve and ensures that the trader becomes proficient quickly.
Gain knowledge. Many platforms have all the important information laid out in an easy-to-understand manner, enabling the trader to study and become more informed. Communicating with experienced users empowers the trader to acquire a trading education.
Diminish emotional trading. Copying others’ and fellow traders’ actions prevents personal feelings and emotions from impacting the all-important decision-making process.
Earn revenue quickly. The advice of experienced traders ensures that the novice trader does not require proficient knowledge instantly. Thus, the entry barrier is lowered and they can start to actually trade at once.
Disadvantages Of Social Trading
Cost. Though accessing a social trading platform is normally free, there is a cost involved when using the service, such as deposit fees, withdrawal fees, currency conversion fees, etc.
Difficult to identify successful traders. Social trading platforms have an endless number of professional traders. Though the statistics of the professional traders are listed, it’s challenging to maintain a consistent winning streak, and identifying traders who can constantly deliver successful trades is not easy.
Risk. Trading is not risk-free. The danger of losing capital through trading is real. Social trading is not an exception to the rule, and careful consideration is required before investing capital.
Copy Trading And Mirror Trading
Within social trading, there are two interesting subsets. One of these is copy trading. This is where the platform allows the trader to copy the exact trade made by another trader. This is a manual process and does not involve any bots or automation. It’s a great way for new traders to learn and gain experience.
Another approach is mirror trading. This is where various styles of trades by professionals are studied, tested, and validated for success. It is entered into the software platform and accessible to other traders wishing to perform mirror trading. The trader can choose an algorithmic style based on their personal trading preferences, such as goals, risk tolerance, and capital availability. This is an automated style of trading that’s a hands-off approach highly suited to those without time to study the techniques to become comfortable with the nooks and crannies of trading.
Social trading is a good way for newbies entering the market to become acquainted with the world of trading. It can make the journey smoother, and, with the aid of experienced traders, it becomes possible to learn the ropes quickly.
The great thing about social trading is its accessibility. A few decades ago, trading was only accessible to institutions and people with great wealth. The rise of the Internet and mediums such as social trading enable retail investors to trade on an equal footing with institutions.
This article has been published in accordance with Socialnomics’ disclosure policy.