Social Trading: What Is It?

Strategies and knowledge is the key to successful trading. Even after years of experience, seasoned traders face loss. What they know is to diversify their portfolio to avoid big losses. People who are yet to get the entire required knowledge can definitely use the experience of traders who have earned their status. 

Social trading is a type of trading that allows investors and traders to imitate and put into practice the methods of their peers or more seasoned traders. Because it allows traders to communicate with one another, observe one another’s deals, and gain insight into how others make decisions, social trading is frequently viewed as a form of social networking.

How social trading is carried out?

You can either adopt the entire practice or specific components by using a comprehensive social trading platform. Some traders might prefer to use a social trading platform that is completely integrated and allows for complete strategy sharing via a “copy trading” or “mirror trading” function. Similar to a social networking site, a social trader might select to subscribe to another trader’s channel, whose positions would be published on a live feed with the opportunity to mimic their trades. As a result, if trader A conducts a trade, trader B will do the same thing immediately.

Because social trading networks typically contain a leaderboard based on popularity and success rate, experienced traders have an incentive to share their trading tactics because they are frequently rewarded with both money and status.

Which marketplaces may you trade in social trading?

Early in the new millennium, social trade was used to imitate profitable forex trading methods. Since then, a growing number of trades across asset classes have been made using it by retail traders because it allows anyone to engage, regardless of prior trading expertise. 

Consequently, social trading in indices, commodities, and shares has also gained popularity.

One of the worst mistakes a social trader may make is believing that the strategy entirely eliminates risk. The concept of relying on a third party’s judgment while still bearing the full risk of loss is therefore seen as a significant disadvantage of social trading.

Although social trading may allow you to skip a few steps in the financial markets, it does so at the sacrifice of expertise and experience. It is crucial to ensure that you are doing everything exactly as you should and that you have a suitable risk management plan in place.

Trading alerts

You can imitate other traders’ purchase and sell methods through social trading. This can lessen the amount of preparation required, but it also increases the likelihood that you will rapidly find yourself in over your head. Furthermore, there is no assurance that the third party you have selected to copy has performed the necessary amount of research.

Signs of market sentiment

Using market sentiment is one of the most popular strategies to spot trends and other traders’ preferences. Market sentiment essentially captures how traders are feeling, but it also provides information about what and when is being exchanged.