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What Is Social Trading, Its Pros And Cons?

In recent years, online forex trading has grown in popularity with more and more people choosing to invest in it. While some people have experienced runaway success, others have not fared so well. This has necessitated a platform through which the successful traders can share information, tricks, and advice on what it takes to make money trading forex. It’s for that reason that networks targeting forex traders have been created by industry players. Mimicking social media, these networks make it possible for traders to follow advice from their more successful peers. Very well. Now we answer the question “what is social trading, its pros and cons.”

What Is Social Trading, Its Pros and Cons?

Also known as copy trading, social trading involves an automated system that copies transaction information such as trades and limit orders between two different accounts. Social trading requires registration on special platforms, choosing a signals provider, and subscribing to their signals. The signals provider is basically another trader on the same platform, preferably a more successful one. Subscription means every time the trader does a transaction it will be replicated automatically in your account. While it is possible to copy all transactions, you may place restrictions on the proportion of deposits or number of daily transactions.

However, if you are the one sharing information, you are equally a social trader. As soon as you make a trade, all the people who have subscribed to your account will receive information about your trade. The people on your network are able to view every single transaction you make through your account. Thus, your subscribers may choose to copy your trades in the hope that they will be successful. On some sites, trades are copied automatically so that there is no delay.

The essence of social trading is to allow forex traders to ape the actions of their more successful peers in the hope that they will get more profits. For traders who are not comfortable with automating social trading, following the actions of their successful peers from a distance will do the trick. As such, they could make use of the social trading wall.

The thing about social trading is that you benefit from the professional decisions of more experienced traders. It takes away the need for making the technical analysis on your own. Even with little or no experience, you can start trading. If it is automated, you will start making income without spending much time or effort. It works much better than having to make emotional trading decisions.

How Do You Find A Successful Trader To Copy?

Online forex trading platforms have thousands of successful traders which makes choosing the right one to ape very difficult. In essence, you have to sift through all the profiles of the potential candidates. If you are not careful, you could end up settling on the wrong person. To minimize the risk, you may have to choose multiple experienced traders.

Pros

  • Increases chances of inexperienced traders earning some money, so long as they are ready to invest.
  • It provides a way of earning passive income, given that you do not need to spend time and effort trading in forex.
  • Social trading is suitable for newbies and traders with little or no knowledge of forex trading.
  • People who are prone to making emotional trades are better off adopting social trading, given that it requires no personal analysis of the market.
  • It is an effective way of managing risks compared to manual trading. After all, you can select multiple expert traders and copy every move they make.

Cons

  • To find an expert trader worth following, you must take the risk of picking one among thousands. Chances are that you could end up settling on a reckless, risky trader.
  • Given that many forex traders hardly make any money, it could be an effort in futility trying to copy your peers' transactions.
  • Social trading is no different from manual trading, given the near impossibility of predicting the outcome.
  • The fact that you are copying a particular trader does not mean that he or she has you in their mind when trading. Some may only be driven by the commissions they could earn, nothing more. 

Conclusion

Social trading is undoubtedly a great platform for the inexperienced newbie traders who need a risk-free way to make decisions when placing their hard earned cash on trades in the forex market. However, finding a good trader to copy may prove to be difficult and one may end up putting his or her trust in a reckless, risky peer. If you want to earn a passive income in forex trading, this is the way to go.

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