What is Social Trading?
How active of a trader are you? If you're reading this, you are most likely well-informed of 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.
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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: An Introduction
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 which is now spilling over into the majority of 2021 has been 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 details to answer the leading question, what is social trading?
Social Trading, Explained
What is social trading? We're going to break it down it the simplest way, as generally speaking, it is a rather straightforward explanation. Social trading is basically a form of investing which 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 trader's 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, the chance to utilize additional skill sets among other benefits.
Below we summarize some of the main advantages to social trading:
✅ It offers the possibility of networking with other traders, being able to ask questions about all kinds of markets, doubts about techniques, discuss 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 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 to utilize 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.
Copy Trading with Admirals
As a somewhat recent product offering for our users, we now offer you the option to copy trade a selection of experienced traders from the Admirals group of traders. Both a competitive and wide selection to choose from, you can use this option to gain exposure to unfamiliar markets as well as strategies, overall increasing your trading activity.
As long as you have a live account with Admirals, you have the option to copy trade from within your Trader's Room Dashboard (in the left column). Answer some standard risk tolerance questions so we can do our best to assist in helping you with risk management, and in a few clicks you'll be able to explore and implement copy trading in your account.
Important to mention, you are always able to set your Stop Loss, Take Profit and copy ratio limits, regardless of how your copy trader has theirs set.
Once you have gone through the quick process of signing up to copy trade, you can browse and review the different trader profiles. The details will overview their past performance, preferred markets and exposure – When you click on a trader profile, you will be able to view even more details.
Each and every trader has a monthly fee they charge for those who want to copy trade them – you can view this here. The fee never changes without notifying the copiers, so your cost to copy trade remains the same.
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. The concept of social trading and thus, copy trading is certainly something that is gaining momentum and will truly change the face of trading and the financial world overall, as we know it.
At Admirals, we always move forward into the future. Be on the upward trend with us and optimize your investing strategy and efforts by considering the world of copy trading and social trading. Always put your risk management first and invest only what you're comfortable losing – this is always your first principle and golden rules when it comes to investing.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.