Social trading is a great way to trade markets by replicating positions and discussing trades with other traders. If you don’t want to invest time in analysing opportunities then social trading could provide you a quicker entry point into trading markets successfully.
What is social trading?
Social trading, sometimes known as mirror trading, is a form of trading where you follow what a more experienced investor does. It entails copying the strategies of other traders who have put the time in to do fundamental and technical analysis and have built up knowledge and expertise over the years. It is a kind of social network where traders can interact with each other and learn about decision making from more experienced traders.
Traders can share strategies and copy each other’s trades through social trading platforms or by following their recommendations on social media. Traders can subscribe to a trading channel who broadcasts a feed of their trades giving the opportunity to mirror their actions. More experienced traders offer their knowledge and expertise in exchange for money and/or status. Social trading is hugely popular with younger traders, allowing them to see what is recommended and what works. After all, you wouldn’t go to a restaurant with a bad review so why would you trade something that isn’t recommended. Social trading is a way to confirm what trades will be successful and how best to execute entry and exit points. You can trade any asset, with certain platforms and traders specialising in shares, commodities, fore and crypto.
The risks of social trading
Social trading is a fantastic way to include anyone and everyone in financial markets. However, you must be aware that with any trade there is risk. Trusting a third party who has more experience than yourself is great to guide you and allow you to learn about how markets move, but it is always up to the trader to make the decision whether to copy trades and take on financial risk. Following the moves of other traders means copying their trading strategy and not everyone has the same aims and risk appetite. Only trade what you are comfortable with as although it is easy to skip a few steps for the hope of profit, success isn’t guaranteed. Never trade more than you can afford to lose.
Don’t be tempted to bring in high leverage, as although it may boost gains it may also magnify losses. Traders who share their expertise and trades cannot guarantee success so decide your own risk and leverage when following other traders’ moves so you are aware of what you are entering into. Whilst mirroring experts will likely reap rewards, you need to ensure you are doing it on your terms.
How to get started
There are several ways to go when it comes to social trading. You can simply look through social media (especially instagram) to find a plethora of traders willing to share their strategies. Social media is also a great way to interact with experts and dive into discussions with a community of people who genuinely want you to succeed.
There are also well founded social trading platforms set up by industry experts and brokers. eToro is a great example of a social trading platform from a regulated broker. eToro have low fees, and is super easy to open a new account with in almost any country in the world. eToro also have a low minimum deposit of only £150 meaning if you’re a beginner it can be really simple to get started! eToro verify popular investors to guide you to people you can really trust. You may be asking yourself what expert traders get out of the arrangement? For full clarity, eToro rewards popular traders depending on the number of copy trades that have been carried out. The top “elite” traders get 2% annually of the funds through this scheme plus the bonus of commission free trading.
eToro is a multi-asset platform which offers CFD and non CFD products. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
If you want to start trading and learn from expert investors then social trading might interest you. We always recommend beginner traders to learn the basics before they start investing, so if you are not ready, build your confidence with BullBear.