How Does Social Trading Work and Is It a Good Idea for You? | Mike McRitchie | Resume and LinkedIn Profile Writer

Social trading is one of the biggest trends in Forex, but a surprising number of people don’t know what it is or why others are doing it. Social trading can be a great option for new investors and it is one everyone who’s just getting started with trading should consider. But how does social trading work? And is it a good idea for you? In this article, we’ll explain exactly what social trading is, why it is so popular, and how to know if it is a good idea for you.

What Exactly Is Social Trading?

Social trading combines social networking with investing platforms. You aren’t paying for an investing newsletter and trying to figure out how to set up trades per the guru’s advice. You won’t need to follow a bunch of financial experts on social media and rush to your trading platform to implement a buy recommendation. Instead, you’re able to network with other traders on social networking sites specifically for that purpose.

How Does Social Trading Work?

Social trading is more than a social networking site for traders. Social trading lets you copy successful traders’ trades just like you’re forwarding a social media post. You can replicate their trades in real time, though this is affected by the amount you have invested. If they buy a particular item, you can set up your account to replicate it as soon as they open a position. You can benefit from their expertise in market trading without having to read a newsletter or figure out how to use that information. Or you can set up your own trades. You’re in control.

The Benefits of Social Trading

Social training has tons of benefits which makes it a great option for new traders. For one, these sites are very transparent. You can often see the stats for each trader and verify that they are as successful as they say they are. This allows you to know for certain they are earning a set profit margin and that the gains they say they’re earning are not the result of a one-time fluke. You can see their open trades, their profits, their maximum drawdowns, and other relevant statistics.

But the biggest benefit of social trading is that you can ride on successful traders’ coat-tails without having to invest massive amounts of time learning their system. This is far cheaper than hiring a financial advisor who may or may not generate the returns they’ve promised. You also have the option of switching methods as soon as you find something better. In all cases, you will earn while you learn. There are also tons of different platforms you can choose from, all with their specificities and distinct communities. Sites like InvestinGoal.com have teams of social trading experts who review various social trading platforms and also provide useful trading advice. They also have a variety of social trading tools you can choose from as well.

Another great thing about social trading is that you can develop a successful trading strategy yourself and sell your strategy to others to make money on these sites. It is akin to selling your advice, but you don’t have to craft a brand as a trading guru. That can be an extra source of income for successful traders, and it generates passive income for the copiers who follow them.

Another clear point in favor of social trading is that you can join these sites and start benefiting from the wisdom of others when you have a small account. You can tap into the expertise of the experts who might otherwise just send a generic newsletter or charge a fortune to manage your account. However, social trading creates a space where the successful traders can share their opinions and issue their forecasts.

Traders can talk to other traders about market conditions and share ideas. However, your social media feed isn’t cluttered with pictures of other people’s lunches and pets. Instead, the conversation focuses on the market, strategies, and results.

How to Know If Social Trading Is Right for You

Social trading does bring risk, especially if you copy the strategy of someone who isn’t doing well or has such a low-profit margin that you don’t earn money after the commission you pay. If you want to try novel trading strategies, social trading isn’t right for you. Social trading doesn’t require you to be a social butterfly, connecting and chatting with lots of people since you can simply connect with a successful trader and copy their trades. However, those who are constantly reading about the market will benefit most from social trading.

What You Should Know Before You Start with Social Trading

Before you start with social trading, you should know what your goals are first. You first have to know if you either want to strictly copy other’s trades, trade socially or be copied by other traders.

While copy trading and social trading do have their similarities, they aren’t 100% identical. With social trading, you’re basically pooling from the community’s knowledge and use this knowledge to make trades. You could also use the community to gauge market sentiment for a particular currency pair or stock. This is particularly good if you already have some experience with trading and want to supplement this experience with expertise and/or data from other members of the community.

With copy trading, on the other hand, you choose certain traders you feel have the same trading philosophy as yours or are consistently making profits, and entirely copy their trades. This allows you to follow a winning strategy without having to understand the markets per se. This is a great option for those who don’t have a lot of experience or don’t have the time necessary to conduct in-depth analysis of different stocks, currencies or commodities.

But if you’re already a seasoned vet and would like to make a little bit of extra money on the side by benefiting the community and sharing your trades, you can do so as well. You’ll get paid a commission based on how popular and successful you are.

Knowing what your intentions are before you start is essential when choosing which broker and platform you’re going to go wwith th, so don’t take this step lightly.