Social trading has been rising in popularity among young traders due to the transparency that comes with this option. Like its name suggests, social trading can be thought of as a type of social network as it allows traders to interact with one another within the trading platform. Discover how social trading works and learn how you can potentially use this in your trading journey.
What is Social Trading?
Social trading can be seen as a type of strategy when it comes to trading and investing, where traders get to observe the trading history of others within the trading platform and subsequently follow their trades should they wish to. While most traders perform fundamental analysis or technical analysis to make trading decisions, some prefer to observe and replicate the trades of others. To take a leaf out of someone else’s book could work in your favour if you have selected carefully those with a proven track record and an appropriate risk appetite that fits yours.
Social trading can also be used as a form of social networking, where you could share your latest trading ideas, strategies and actual trades made.
New traders with limited financial knowledge can use social trading to hone their skills by learning from others. They can learn from successful traders based on the trading history documented and the trading strategies used. New traders can also better understand how trading strategies are derived, and how trading indicators are used, by observing the trades made of other traders. However, do note that not all trading platforms offer social trading as a feature. Here’s an example of the Vantage social trading platform on their app.
How Does Social Trading Work?
Social trading allows traders of various expertise levels to share their strategies and follow each other’s trades. Within the social trading platform, traders can check the historical performance and the risk level other traders are taking to achieve their current trading performance. Advanced trading platforms are user-friendly enabling traders to become social traders, for example, by allowing traders to directly copy other people’s trades.
For professional traders, some incentives are offered by the trading platform to share their trading portfolio and strategies. These traders are often rewarded with money and status as social trading networks have a leader board of popular investors or best traders to follow with their trading success rate percentage shown.
Some traders might prefer to use social trading for ideation but maintain control over their trades by using a range of signals and indicators. Traders can look at other traders’ market sentiment and activity, which can serve as a confirmation of their analysis. Then they can make their own decision based on all the information they’ve observed. The Vantage app allows traders to copy their preferred Vantage Top Trader on a large array of different CFD markets such as shares, commodities, indices, and forex.
By using the copy trading function offered by the Vantage app, you are able to directly copy trades of Vantage Top Trader and execute the trade without having to spend hours on your own before deciding to make a trade. Download the Vantage App now and join Vantage Social Trading today!
Which Products Can You Use Social Trading For?
Social trading first gained popularity in 2010 when a trading platform launched the social trading option within its platform for forex trading [2]. Since then, trading platforms have grown and begun to offer other asset classes for traders to trade. For example, Vantage, a global CFD broker, provides traders with a platform to trade CFDs on forex, commodities, indices and shares. By downloading the Vantage app, you can start to monitor and copy trade with other successful traders.
Difference Between Social Trading and Traditional Trading?
| Social Trading | Traditional Trading | |
| Skills required | You are able to monitor the trading activities of others and select those with a proven track record to learn from. | If you are looking to beat the market, you will have to do your own technical, fundamental analysis and research before trading. |
| Information Sharing | You can share your trade information and trading strategies easily on the platform, which will then be shared to all those who follow you. | You can only share your trading information and strategies to those you choose to tell. |
| Time Commitment | You may need less time commitment to trade. You can use the trading platform and access the trade ideas and trading history of other traders on the platform before following their trade. | You may need more time commitment. You will have to do your own market research and spend time monitoring the markets before deciding on which trade to make. |
Difference Between Social Trading and Copy Trading?
| Social Trading | Copy Trading | |
| Method of trading | You are able to make your own decision before following the trades of other traders on the platform. | Once you have chosen a trader to copy, the automated trading systems will help you copy and perform automatic trades. |
| Education | You can learn from one another by sharing trading ideas through the platform. | Less knowledge is shared as you directly copy the trade of another trader. |
| Time consuming | More time is required as you will have to monitor the trades performed by top traders before following their trades. | Less time is required as you just need to select the trader you want to copy from, and the platform will perform the trades for you. |
Social trading Pros and Cons
Pros
- Community. By using social trading, traders are able to tap into the community that provides knowledge and friendly support to one another. The social trading community is full of like-minded traders who are passionate about trading.
- Learning Opportunity. New traders without any financial background can learn from other professional traders on the platform. Social trading allows newcomers to learn by observing, monitoring, and communicating with more experienced traders.
- Time needed to trade. Through social trading, traders are able to follow the top performers on the trading platforms conveniently. This helps traders save some time in doing their own market research, fundamental analysis, and technical analysis before making a trade.
Cons
- False sense of security. At times, the trading performance of top traders on the platform might not be the best indication that they are always making the best trades. Even the most successful traders are prone to making trading mistakes when executing trade ideas. Traders should be aware of the risks involved in following others. You are encouraged to assess cautiously if your appetite of risk and investment objective are in line with those you intend to copy from.
- While checking the impressive trading record of a professional trader on the platform, it is easy to fall into a sense of security based on past performance. Past performance is not indicative of future results. Over reliance on past performance or track record may lead traders to become overconfident with social trading and follow their trade blindly. As traders, please understand that even the brightest traders make mistakes. In some cases, some traders who appear profitable might have quietly kept their losing positions open and hence reflecting only the winning record.
It is advisable to conduct due diligence on those you intend to follow, not just simply on winning trades but also from the aspects of strategy, skill technique, risk management among other key attributes of a long-time professional trader. After all, you will be solely responsible for deciding whom to copy from and the trading outcomes that follow.
Social Trading Using The Vantage Mobile App
Vantage Social Trading offers Top Traders (aka Signal Provider) not only as an avenue to study the financial markets, but also an opportunity to earn monthly extra income by letting others copy trades through the Vantage Mobile App. Start copying your preferred Vantage Top Trader on a variety of different CFD markets such as shares, commodities, indices, and forex. Download the Vantage App now and join Vantage Social Trading today! You can also start trading on the Vantage website with a demo account that allows you to practise trading risk-free, with virtual funds of up to $100,000.
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