Compare Social Trading Brokers
In recent years, social trading has become hugely popular as more and more people seek new opportunities to grow their investment portfolio.
We are constantly asked “who is the best broker to trade with?” and our typical response is ‘well that depends on what you are hoping to achieve‘. As investors, we are all different and have differing strategies on how best to manage our own money.
For those new to the concept, social trading allows investors to observe what other, more experienced traders are doing. You can sign up for an account and see what professional traders are trading on and make exactly the same trades as they are.
Read on to see if social trading might work for you.
What is Social Trading?
Social trading is a form of investment, where a trader can observe the strategies, techniques and trades of an expert trader. It is said that this form of trading “democratises” online investing by making trade information more accessible to those with less trading experience.
Social trading is ideal for those who are interested in the financial markets, but do not have the time to research, or lack the experience to make their own trading decisions.
This form of trading continues to grow in popularity and works on the same basis as social media, in that you can request to follow another trader and view their trading activity. You can then copy their trades or follow their trading strategy.
How Does It Work?
New and improving technology has made it easier than ever to become a social trader. Social trading works by creating quick & easy access to global financial markets for newbie traders who can learn from more experienced traders, share trading strategies and/ or copy their trades.
Similar to social media platforms like Facebook, social trading works off the same basis. You can sign up for a trading account, subscribe to another trader’s channel, follow what they are doing and then copy their trades which are broadcast on their live feed.
For instance, say you are following Bob, an experienced FX trader. Bob makes an AUD/ USD trade that you think looks good. You could replicate this trade on your own account so when Bob opens his trade, you can execute the same trade on the platform you are using.
Often, experienced traders who are followed, are rewarded both financially and in status, with most social trading platforms having leaderboards based on success rate and popularity.
The Benefits of Social Trading
Very little trading knowledge or effort is required
Social trading is massively time efficient as you do not need to do much (or any) homework on the markets before making a trade. All you need to do is find & copy some of the best traders on your social trading platform and you could create a nice profit stream. Of course, there are risks involved – trading is not easy and even the very best get it wrong more than right, so tread carefully!
If you are new to online trading, social trading is a great way to get started. Connect, watch and follow the very best traders – ask questions, read their live feeds and learn from the best.
Trading results are usually verified by the broker
Almost all social trading brokers will publish their followed trader’s trade results to ensure you are not following someone who is trading on a demo account, or not publishing their losing trades. A clear track record is the only way for social traders to remain legitimate and fair to those following.
More trading ideas
With social trading, you will never lack trading ideas or miss opportunities as you will be constantly exposed to other’s trading strategies and info. This is not only great for those who are new to the financial markets. It is also helpful for those who are experienced but lacking in ideas – see opportunities that you might not have seen before! Social trading opens up so many trading opportunities and potential.
You do not need $1m to get started
As social trading is a leveraged trading product, you only need to deposit a small (ish) amount of money to get started. Leverage allows you to gain exposure to larger positions sizes than traditional stock trading, with less money. More on leverage here. Most social trading brokers will allow you to open an account from as little as $100. With leverage of 200:1, that is access to $20,000 in trading funds!
We would never say that online trading is easy because it isn’t. That said, social trading is probably the easiest form of trading as all you are doing is copying someone else’s trade ideas. Of course, this is not risk free at all and you should only trade with money you can afford to lose. Social trading platforms also offer many free features that can help you become a better trader.
Some Of The Risks Involved
You have seen why social trading is so popular with the benefits listed above. But what are some of the negatives of online social trading?
There are some unknowns..
Despite the fact that leading traders (that you follow on a social trading platform) are ranked based on trading success and popularity, not all details are revealed. For instance, you can see a trader’s success rate but you will never be able to see or know the following:
- How much money they have on their account.
- Whether they are hedging large positions on a social platform (to look cool/ gain popularity) with trades on another system.
- If they trade elsewhere and/ or how successful they are outside the social trading sphere.
- How successful they will be in the future.
Never forget that online trading is extremely difficult and it is more likely you will lose money than make it.
Social trading can give the impression that trading is easy – all you need to do is sign up and follow an expert and you’ll be come rich overnight. This could not be further from the truth! Never become complacent with social trading, or any other form of trading, because large losses are never far away if you become to arrogant.
Following on from the above point; online trading is exceptionally difficult and can result in large losses. Always start small and only trade with money you can afford to lose.
Different Types of Social Trading
There are a few different sub-segments of social trading, here are the most popular forms.
Social and copy trading are often confused as being the same thing when they are not. Put simply, copy trading is a form of social trading, whereas social trading is not a form of copy trading!
Copy trading platforms allow trader’s the ability to follow expert traders as well as automatically copy each of their trades, direct to your own personal copy trading account.
Please note, you do not have to follow their trade to the exact detail. For instance, if they make a big trade, you do not have to replicate the volume they have input. Instead, you may choose to trade 1/10th the size of their trade to suit your smaller account size. Your trade closes as soon as the trader you are following, closes theirs.
This form of trading is often mistaken as being the same as copy trading, but there are key differences. The main one is that with mirror trading, you do not follow/ copy an individual trader, instead you copy/ follow a trading strategy. All you need to do is choose which strategy you wish to mirror, how much you wish to trade and how much you can afford to lose, per trade.
Mirror trading is mainly used by professional FX traders. This is due to its automated nature and potentially large volume of trading activity, which requires full time attention and a larger amount of capital than copy trading.
Trade signals and tips are another form of social trading, although less automated. Most trade signals are provided by expert traders (although not all the time so please be careful!), either for free or you can pay via a subscription service.
The trade signals are typically generated by human technical analysis or by an automated algorithm. These are then sent to subscribers via SMS or email.