Social Trading: What is Social Trading?

Brandie E Blackler
8 Min read

How active of a trader are you? If you're reading this, you are most likely well-informed about how big the world of CFD trading and general trading has become. 

Perhaps even more so, you are finding yourself becoming more immersed into the trading and financial world; the trend of the retail trader has certainly arrived and made its mark on the globe.

While the trend of the modern trader continues to develop, the world of trading follows. What is social trading? Are you involved in social trading?

This somewhat new option of trading amongst peers and others with a similar financial interest continues to grow in popularity amongst the trading community. Learn more about what is social trading and how one can participate.

Social Trading: An Introduction 

You may have also found yourself discovering new sub-trends within the topic of online trading – for instance, you may be wondering: what is social trading? What is copy trading? Are they considered the same thing?

Not to be confused with mirror trading, social trading and copy trading are more intertwined with each other in the modern world of trading – while maintaining their complementary differences.

Let us go into more detail here as to 'what is social trading?'; understand the differences and how you can apply relevant vehicles to your trading journey. 

Social trading is certainly on-trend and growing over the last few years, as we have established. Any industry's growth and progression have various influential factors. One of these factors which remains always present is events or news which affect the globe. The 2020 pandemic was a huge driver in the popularity of social trading. 

To sum up what happened not so long ago, markets crashed and faced very negative drops when this pandemic first hit. People lost jobs, were working from home or their income had been drastically cut.

A reality which hit hard for many regular, everyday working people, you could say this is when the rise of the retail trader had truly hit its peak. Charles Schwab even conducted a study proving exactly this, coining 2020 as "Generation Investor". 

Many people have since signed up to Forex and CFD brokers to learn how to trade on the stock market. Of course, education is key in this industry. One must always consider that there is a risk to trading in any capacity, and the more you understand this and use effective risk management, the more prone you are for success. 

New traders surely have found their style, preferred market sector and exposure, however amidst this shift in the industry, social trading has found its place as well. There is a growing amount of retail traders who have gained confidence in their trading style, but may lack the time or expertise in certain markets.

The term 'social trading' has come into the picture as many traders find themselves using copy trading to increase their trading activity. This is also reminiscent of the much older trading strategy known as mirror trading, which is purely focusing on mimicking the trading strategy of another trader or portfolio (and not the exact positions, as with copy trading). 

Now that you have some understanding of the influential factors that brought social trading to what it is today, let's go into more detail to answer the leading question, what is social trading? 

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Social Trading, Explained 

What is social trading? We're going to break it down in the simplest way, as generally speaking, it is a rather straightforward explanation. Social trading is basically a form of investing that centres around community involvement – investors both follow and observe the trade behaviours of others. 

This so-called community will usually be within a literal platform where traders can watch the activity of other traders, follow their opinions, and make comments and opinions, themselves.

Social trading gives you a fascinating look into analysing financial data based on successful traders' movements, with the option to use copy trading to literally copy their exact movements and strategies. 

Why is social trading popular? Well, in theory, you do not need to have much or any knowledge to participate... especially if you are simply following experienced traders for the sake of learning. Anyone can get involved, the information is generally explained well for all education levels; it's a win-win for everyone. 

Social trading, as a concept, is really the overall umbrella which houses both copy trading and mirror trading; these two are specific trading strategies which can be implemented as a result of the social trading environment. 

The growingly popular trend of social trading could very potentially remove the need for many traditional positions within the finance world. For instance, wealth management advisors have lost much trust, as a whole, with customers since the financial crisis. Individuals are taking their money's future literally into their own hands. A low-cost solution such as social trading suddenly makes a lot of sense.

Before we round this section off, take note of the fundamental differences, below: 

  • Mirror trading: The first trading strategy to emerge, back in 2000, mirror trading is closely tied with automated trading. It consists of replicating a strategy programmed by a trader and hosted on the server of the company that offers trading services to make it available to those users who want to execute it. 
  • Copy trading: In this case, successful traders have the option to register for other traders to copy their exact positions for a small monthly fee. While the person copying always remains in control of the settings, they are fundamentally setting up their account to open and close the exact positions of the trader they want to copy. 
  • Social trading: This component is really the most important – social trading is the core topic which houses both mirror and copy trading. What's more, social trading works generally as an actual platform where you can view, share and comment on the trading activity of others.

Advantages of Social Trading 

As you may imagine, social trading and using copy trading in your overall strategy can bring potential benefits. When you find a trader of interest, you can sign up to 'copy trade' easily and quickly. This gives you exposure to other markets of interest, and the chance to utilize additional skill sets among other benefits. 

Below we summarize some of the main advantages of social trading: 

✅ It offers the possibility of networking with other traders, being able to ask questions about all kinds of markets, doubts about techniques, discussing an event that affects investors, and so on. 

✅ It allows you to start trading without prior training experience and learn little by little from experienced traders, as you are getting hands-on experience. 

✅ Those traders who do not support high levels of pressure and who are easily carried away by emotions can find in social trading a way to invest more wisely, by copying the positions of other traders. 

Disadvantages of Social Trading 

While there are certainly benefits to social trading, of course, there are also disadvantages you must be aware of. Social trading should not be seen as a 'miracle' way to trade which dissolves the need for common sense and your own due diligence. 

Consider the below points when considering utilizing both social trading and copy trading in your strategy: 

❌ New traders who decide to social trade as their first form of contact with the market can get comfortable, leave their operations in the hands of professionals and not be properly trained. This leads to a lower perception of risk, which is dangerous when deciding how much capital to invest. 

❌ The risk profile and capital that we have can be very different from that of the trader we replicate, so we must be careful when replicating some high-risk strategies such as scalping, for example. 

Social Trading: The Conclusion 

Chances are, if you are here reading this and registered with Admirals, you are already moving along in the right direction of this financial revolution. 

Be on the upward trend with us and optimize your investing strategy and efforts by considering the world of CFD trading, investing and more.

Always put your risk management first and invest only what you're comfortable with potentially losing – this is always your first principle and golden rule when it comes to investing. 

If you'd like to start trading and investing, make the first step by registering a live account with us – Click the banner below to get started:

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What is the meaning of social trading?

Fundamentally, social trading is the act of trading online by sharing information, strategies and opinions on overall online trading activity with others who hold the same interest as the individual trading. The overall goal of social trading is for the masses to benefit from sharing information and experiences on the markets with other traders.

 

What is an example of social trading?

A general example of social trading would be if a new or novice trader decides to trade the CFD stock market but perhaps has no previous experience. This new trader may decide to follow other more experienced traders in their market of interest in order to learn from their movements and essentially 'copy' or duplicate the strategies into their own portfolio.

 

Other Articles of Interest:

 

INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on Brandie E Blackler, Financial Analyst, personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.

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