What is social trading?
Social trading is one of the hottest new trends in online trading right now. It brings the digital benefits of social media - speed, transparency, communication and community data - into the traditional world of trading. It means traders can now see one another’s profiles, trading patterns and activities, talk to them in real time, and track their profit and loss.
The birth of social trading
The web 2.0 revolution has changed the internet in a big way. Previously, a website would be created by one entity and read by many. But, web 2.0 is all about user-generated content - blogging platforms, social networks, crowdsourcing, and generally harnessing the power of the masses.
The world of online trading is no exception. Websites and platforms have introduced brand new ways to trade, leveraging the new features of social media and the combined wisdom of the crowd.
The most common form of social trading is simply copying other traders, mirroring everything they do in real time. When copying a trader, the entire process is automated, meaning every action the copied trader does is replicated in the copier’s account. This is great for traders who lack time or experience, or just want to take more of a hands-off approach to trading. You can research traders you like, typically the ones making good profits, and choose to track and copy all their future trades, letting the experienced traders do the legwork and make all the decisions for you. You also get to watch other traders in action, learning from their strategies and gaining insights all the time into how they open and close trading positions and, hopefully, make their profits.
A great bi-product of copy trading is that it creates a whole new level of transparency and data sharing. Trading involves risk, so traders who like to copy other traders want as much information as possible about who they’re copying. So, on social trading platforms, each user that could be copied has their full trading data available for others to see. Statistics such as gain and past performance are presented alongside each trader’s portfolio. While this is primarily meant to supply information for copiers, it also serves as an amazing educational resource, as it gives all traders a taste of the ingredients that go into successful trading strategies.
Next-gen investment tools
Social trading has also spawned what’s known as thematic investing. This is where a type of financial instrument, or a themed group of assets, become a popular trading vehicle. For example, eToro offers CopyFunds. They group together various successful investors, following a specific market theme, into a single tradable fund, such as technology stocks or the big banks. CopyFunds are a great example of how online trading differs from traditional trading, and showcase the many innovations that social trading has brought to the party.