What Is Social Trading?
Social trading is a form of trading that involves the free sharing and using of information among a group of traders, which provides traders with access to new trading ideas, risk management and client sentiment. Social trading integrates the exchange of information into an online discussion and creates a community feeling, as traders can work together to plan specific trading ideas.
Similarities Between Social Trading and Social Networks
Social trading gives traders the unique opportunity to get information about the market from other interested parties. As it is based on collaboration between traders from all over the world, the basis of social trading is social networking. But instead of connecting with your friends and family on platforms like Facebook or Instagram, you can connect with like-minded individuals and exchange ideas, strategies and methods about trading.
The main difference is that while traditional social networks focus on other people’s social activities online and offline, social trading platforms focus on the trading aspect of their lives. The information traders share online is about them as a trader, and not them as individuals.
Most platforms allow traders to easily check out an investor’s portfolio, see their success and failures, and what their specific niche is. However, similar to Facebook or Instagram, not everything shared on social trading platforms is necessarily true; sometimes people misinterpret data and sometimes traders are untruthful for their own personal gain, whatever that may be. It’s crucial to check the trader’s credibility before you decide if you want to follow them.
Following a Trader
As on other social media platforms, you can follow a trader if you like what they’re saying or if you think they might be right in their predictions. This way you can see their moves, comments and ideas at all times. This can help novice traders learn from more experienced traders and ask questions if they don’t understand the reasoning behind their moves. It’s best to follow seasoned traders who are active in their community and are willing to answer questions.
Who Can Benefit from Social Trading?
As mentioned earlier, there are two parties involved in social trading, the trader who shares their trades and the trader who follows. Both can benefit from this activity.
The often more experienced traders who choose to share their trades can generate additional income by becoming influencers. Most social trading platforms pay traders a bonus based on the number of traders who are following and copying their trades.
The traders who follow can learn valuable information and new strategies for free. They have the opportunity to potentially achieve the same results as the more experienced traders, as trades can be copied exactly as the other trader is executing them.
What You Need to Know If You’re Considering Social Trading
Firstly, social trading is not for everyone. Although it has been praised for making trading more accessible to everyone, it has also been criticised for downplaying the amount of knowledge needed to properly learn and master the financial markets.
It’s also important to keep in mind that you should never blindly trust a third party’s judgement, without any prior knowledge or market research. Traders might be wrong and some might even share wrong information on purpose. All trading involves risk, and all traders are likely to make a loss at some point in their journey.
Moreover, mastering the financial markets requires knowledge and experience, and simply following another trader’s decisions can rob you of valuable experience that can be useful if you’re looking to become a serious trader. It’s important to always understand why you are making a certain decision and have an appropriate risk management strategy in place.
Each trader’s decisions are based on their individual trading plan, their goals, motivation, risk tolerance and capital available. Your trading plan should always be unique to your situation and it’s important to understand why a trader you follow is making a certain trade.
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.
