Is Social Trading the Next Big Thing?
The penetration and adoption of the internet have made it the go-to tool for all social interactions, with people both known and unknown. Social media, a relatively new umbrella term has become common talk ever since Facebook, Twitter and other “social media” platforms came into existence. These platforms have empowered people in more ways than one can imagine. To give an example, people are no longer dependent on mainstream media for the latest news. People everywhere can readily report what’s happening around them, in close to real-time, whether it be a global or a hyper-local event. All this is possible due to the increased integration of “Social Media” platforms into everyone’s daily lives.
The impact of social media and social networks aren’t just limited to knowing what’s happening in others’ lives or current affairs. The adoption of technology has started making a huge impact on a range of industries. The financial industry is one among them. The rising number of social interactions has encouraged the decentralization of financial services, and the power of the crowd is encouraging further innovation in multiple sectors – be it crowdfunding for a project or crowdsourced information/knowledge for the next big scientific breakthrough.
In such a scenario, why should trading be left behind? Well, it isn’t. A while ago, trading in forex, stock, and other markets was dominated by a closed group of high-volume investors. They were either highly skilled professionals or the ones with the most resources at their disposal, all of whom used Mutual Funds, Portfolio Managers and/or CTAs to trade. In the last decade, the concept of “Social Trading” has caught up with the trading sector, providing a simple yet lucrative option for both amateurs and professional traders alike.
Social trading employs flexible and attractive models where one can copy trades from signal providers and make money in trading without being an expert in forex. Someone who is good at trading can decide to share their strategies and tricks with others for a price (or free) and let them reap profits as well.
How social trading works
Similar to social networks, there are platforms that are dedicated to social trading. Based on their preferences, users can choose from a large pool of options and start trading. These social trading platforms usually have signal providers, who are experts that have honed their trading skills over a period of time. These traders make their own trades and share the strategies, as well as market forecast and analysis, to help other users place profitable orders. Other traders using these social trading tools can choose the signal provider and have their respective trades automatically copied into their own accounts. Once selected, users are generally presented with an additional option that enables them to further modify these copy-trades to devise their own strategy on top of the signals.
In this manner, a totally green entrant into trading gets to benefit. Similarly, professionals can use signals to compare their own trades or copy strategies to improve their skills. The social trading platforms enable continuous learning, growth and smart investments for people who have little time to focus on learning the A-Z of trading from scratch.
Signal providers are today’s version of money managers minus the outrageously expensive licensing fees. Anyone skilled enough to execute profitable trades with a strong working strategy can choose to be a signals provider on social trading platforms. They can open and close traders for their followers without accessing their accounts, which is known as the “open concept”. This social trading concept has gained widespread acceptance among the trading community.
Social trading platforms not only make it easy for their users to gain access to markets and trading signals, but they also provide a place for the traders to interact with their peers, discuss market situations, watch trading results of other people in real-time, and more.
There are a number of social trading platforms offered by well-known brokers such as eToro, Xsocial, GetBux, NAGA TRADER and Zulu Trade among others. Each of these platforms has its own set of strengths.
Zulu Trade has more than 50 brokers worldwide. The platform has a really active and dedicated live chat that readily addresses any trading concerns of their users. On the home page, they display their signals providers based on their ranking. Users can find more information about them by clicking on each provider, which includes their winning percentages, strategies and current trades.
Similarly, the England and Wales licensed GetBux trades in stocks, commodities, indices, and currencies. It is centered around the concept of “Teaching Trading Through Fun”. The platform starts with a disclaimer on the risks of trading and allows users to begin their trading journey by operating a demo trading account before investing real money.
NAGA TRADER stands out amongst the three. The platform offers over 700 instruments, making it one of the largest social trading platforms. Notably, it accepts cryptocurrencies like Bitcoin, Litecoin, and several ERC20 compliant tokens. In addition, it also comes with AI integration, includes portfolio manager template, and the NAGA Protector feature that is designed to secure profits while limiting losses when trading. Like GetBux, users of NAGA TRADER get to use the demo first before upgrading. To keep users up to date, they have a relevant news and hot topics section as well.
With so many features in the offering, across multiple providers, social trading is a trend which will not go out of fashion anytime soon. AI-based automated trading is probably the next big thing that will follow social trading. However, as long as there exists apprehension about the effectiveness of computer programs when it comes to handling someone’s investments, complete automation of the trading process has to wait.