Social trading basically works like a social network. People who trade with currency pairs, contracts for difference or binary options can exchange information and experience on a common platform on the web. Trade is constantly based on traders recognizing the right signals and using them to their advantage. Not only the market gives these signals, but also other traders. Those more experienced, who’ve been earning their money on the web for years, and who are willing to share their well-grounded knowledge with others play a very important part in social trading. On this common platform professional traders share their knowledge and trade strategies with both beginners and advanced traders. Those less experienced can use all this knowledge and become successful in the trading business. Social trading is a long way from becoming a standard feature, but it’s an increasingly popular one that even some brokers have started offering. On these brokers’ trading platforms signal givers (professional traders) can interact with signal receivers (beginners). Of course this happens on a voluntary basis. The experienced traders aren’t in any way obliged to share their knowledge, their participation on the platform is completely voluntary. On first sight it may seem it’s mainly the beginners who profit from the platform, since they get help as well as tried and tested strategies at no charge. In order to stimulate professional traders to participate, social trading providers offer bonuses for their participation on the platforms. Traders looking for a social trading platform usually have 2 different options. Classical platforms work directly with the respective broker, which enables participants to run their trades directly through the platform. Some brokers act as social trading providers as well, making it possible for the participants to trade with the broker the portfolios assumed from experienced traders. Both options have their advantages, and they’re very helpful for beginners. Generally traders shouldn’t underestimate the fact that social trading platforms can also be used for direct exchange of information and experience with each other. For example, in the open communities you can ask questions and share your own knowledge. The meaning and purpose of social trading is using the platform to help beginners become experienced traders, who then impart their knowledge to other beginners, a circuit that all participants profit from.
What advantages does social trading offer?
In the world of trade knowledge plays a very important part. The same applies for binary options, trade with contracts for difference and forex trade. Traders with enough knowledge have a better feel of the market, which earns them profits. On the other hand, the risks for inexperienced traders are relatively high, and they can easily translate into losses in the beginning. On first sight virtual trade seems easier than it actually is. Placing an order successfully requires a lot of prior hard work, and traders must be ready to constantly learn new things. Especially in the beginning it really can’t hurt for the beginners to get all the help they can get from the experienced. Social trading makes this possible even at no further costs. Using most platforms is completely free, and payment is only necessary when a trader decides to place an order. Until then, traders can simply observe the signals of experienced experts. The best option would be for traders to look for providers that offer a free demo-account. With this account traders can resort to virtual funds, and test all features of social trading to the greatest extent without any financial risk. What’s generally very important in social trading is high transparency. This practically means that the signal giver lays open all his actions. This applies not only to strategies, but also to risk approach. This way followers of experienced traders get a clear picture from the signal givers, and their decision whether to trust the trader or not is made easier. Social trading has been developed mainly for beginners, who can benefit from quite a number of advantages. Experienced traders taking the time to act as signal givers also get rewards for doing so. Signal givers who trade a lot and are also successful can increase their winnings through social trading, since the providers’ bonus payments are relatively high.
Are there also disadvantages?
Social trading is a very useful thing for beginners as well as for professionals, but there are of course a few small disadvantages that should be taken into account. Usually a lot of experts and professionals do social trading, which is why the field is packed with technical terms. This can be a disadvantage for inexperienced traders if they don’t understand these terms right or, even worse, if they understand them wrong. For this reason beginners should take the necessary time to get acquainted with the prevalent technical terms. Reading sheets and statistics is also as good as mandatory for beginners. Of course you can take over a portfolio 1:1 but it’s usually better if the signal receiver gets a detailed picture of how that portfolio came to be what it is. A disadvantage is surely also that, in social trading any trader can become a signal giver, which makes it difficult for the signal receiver to decide what experienced trader to trust. A bad decision can also mean loss of money, of course. Unfortunately many beginners tend to just copy a portfolio without first gathering extensive information, and then they wonder about the high losses. But besides these possible losses of capital there’s also the social trading fees to be taken into account. These diminish the possible winnings for the trader, for which reason traders should first run a comparison check between many providers, and discover which social trading platform has the lowest fees. This is a lot of work, but it saves the trader money in the long run.
The most important criteria when choosing a provider
By comparing providers beginners can discover which social trading possibility suits them best. Transparency is one of the most important topics. The applicable fees should be easy to distinguish on a first read. It’s helpful for future signal givers if the provider offers an overview of the possible revenues. When selecting a provider traders should also take into account that all earnings of signal givers consist only of real money and not of virtual funds. Of course that when selecting a social trading provider the same criteria applies as for normal brokers. In all cases providers should be reliable and have strict rules. Deposit protection should also be available.
What should I watch out for in social trading?
Social trading was developed mainly for beginners and traders with little experience. Beginners are the ones to benefit from it most, since they have access to the knowledge of experienced traders. The latters’ advantages for taking part in social trading are that they can expand their already available knowledge, and increase their winnings on the respective platform. All this requires a certain amount of work for traders. Signal givers only make profits if their own portfolios are successful. The general risks that arise when trading with contracts for difference, binary options and currency pairs are also there in social trading. On the one hand the risk of loss is almost the same as the risk of loss in classical trade. On the other hand the risk of loss increases for signal receivers if they don’t study the field sufficiently, and assume a portfolio just like that. Traders who want to become signal givers have to join the respective platform as signal givers, and make their portfolios openly available. Some social trading platforms additionally require that signal givers disclose their true names. But in order to attain long-term success registering as signal giver isn’t enough. Experienced traders must constantly improve their strategies too, and constantly keep an eye on the respective market. The big social trading platforms are especially programmed for social trading, and offer a higher number of features than the limited social features of simple brokers. By means of an online comparison check of providers traders can quickly find one that suits their needs. Regarding the offer and fees it’s always advantageous to first test the platform for free. Most providers allow the use of their platforms at no charge, and traders can simply create a free account and use it in order to get acquainted with the respective offer. Costs arise only when a trader takes over a portfolio from a signal giver, and commissions the broker with it. Fees depend on the broker’s spreads and general trade fees, and are applicable for both signal giver and signal receiver.