Fundamental and technical analysis is the key to price determination in the forex and stock market. Traders analyze past price movements and news events to ascertain future price movements. While the analysis can be tedious and mind-boggling, a new option is already taking shape, providing leeway for people with the least skills and experience to engage in trading. Social trading is the latest sensation taking the investment world by storm.
What is Social Trading?
Social trading is a trading method whereby traders rely on other experienced traders for trading ideas and opportunities. Instead of carrying out fundamental and technical analyses by themselves, social traders base their trading ideas on other traders’ data and analysis.
Social trading works the same way as social networking. However, Instead of sharing photos and videos, social traders share trading ideas, strategies, and an opportunity to interact with experienced traders, thereby gaining much-needed insights.
Social trading first came to life in the early 2000s as traders started using it to copy successful trading strategies. It has grown in prominence in recent years and popular trading strategies for stocks, commodities, indices
How Social Trading Works
Social trading provides traders a unique opportunity to get valuable information and trading ideas from other interested parties. In this case, a trader can collaborate with other traders or use the information to plot their trades. Therefore social trading provides a network for nurturing trading.
A less experienced trader bases his or her financial trading decisions on the generated commercial content or trading signals from experienced traders. In other words, a social trader identifies a successful trader who not only acts as a mentor but a source of trading strategy as well as trading opportunities. Likewise, social traders get to copy trades taken by experienced trading partners.
Experienced traders are often open to sharing trading ideas and strategies since they are often incentivised with both money and status in social trading platforms. For these reasons, most social trading platforms come with a leader board based on the popularity and success rate of each trader’s ideas.
Social trading allows traders to replicate buy and sell strategies of other traders, reducing the preparation needed to come up with trading ideas. However, there is no guarantee that a trader you have decided to follow and copy has done appropriate analysis to generate trading ideas
Social Trading on MT4
Popular trading platform MT4 comes with a feature that is becoming increasingly popular in social trading cycles. Sentiment Trader is the feature that allows traders to analyze market sentiment and view historical sentiments as propagated by other traders.
The sentiment trader feature displays the percentage of traders who are either long a given security and a percentage of short traders. The social trading feature uses information from real accounts.
Social Trading benefits
Access to reliable information
Social trading platforms are becoming increasingly popular, given their ability to share valuable trading information. The platforms’ information is shared by skilled and experienced investors, therefore allowing social traders to make informed decisions when it comes to trading opportunities.
The platforms cut down on searching for reliable trading information by equipping social traders with all the latest breaking news.
Quick Grasp of the Market
The availability of skilled traders in social trading platforms has enhanced the learning curve of most traders. The platforms have cut a great deal the duration and costs of becoming a professional investor, by allowing social traders to learn from seasoned traders in real-time.
Earn while trading
Social trading is growing in popularity as it has made it possible for traders to earn while still learning the ropes of trading. Social trading allows traders to copy trades taken by successful or experienced traders and earn money whenever their trades turn in profits. Likewise, by placing trades, traders get to learn and earn in the process.
Building a social network for trading
Social trading platforms are increasingly building a community for investors where people get to interact with each other and share trading ideas. Being an online platform, the sharing of trading information is simplified.
What You Should Know Before Social Trading?
Just like any other capital market investing strategy, social trading is not for everyone. While the strategy does break the barriers to financial inclusion, a grasp of what goes on into coming up with trading opportunities is important.
It is important for traders who engage in this form of trading to have some grasp of technical and fundamental analysis, highly needed to make informed decisions about trading opportunities.
In addition, social trading is not risk-free as most people would want to think. No trading strategy or style can guarantee 100% returns all the time. Therefore, every trade taken as a result of social trading comes with its fair share of risk. A trader should never follow another trader blindly and implement all their trading ideas without carrying out due diligence.
While social trading, you are essentially taking up another individual trading plan. However, the plan should be unique and rhyme with your own plan and goals. Other traders plans should only be used as a guideline for coming up with trading ideas that meets one’s risk-reward profile.
Social trading is the latest sensation enabling the free flow and access to information in the trading world. The practice has made it possible for beginners and novice traders to get into the art of trading and earn some money while still learning the ropes.
Social trading platforms also provide a network where beginners can interact with skilled and experienced traders to learn how to nurture their trading and investing careers. Likewise, some traders are using the opportunity to share trading ideas and earn money on the side by allowing traders to copy their trades at a fee.
However, social trading is not for everyone. While it has helped break down the barriers to trading in the financial markets, it is often the subject of criticism for downplaying the need to accrue sufficient knowledge to trade the financial markets adequately.