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Social Trading: a Key Tool in the Democratisation of Finance

Whilst it is likely that the copied trader will have a sufficiently impressive track record, past performance is no guarantee that similar success will be achievable going forward. And whilst a novice may well achieve success through copy trading, it is unlikely to be a preferred strategy to learn about the intricacies of trading and financial markets. The community environment and the opportunities to communicate with experts certainly negate that problem to some degree, but social trading is unlikely to be a perfect substitute for learning and trading on one’s own. In addition, social trading platforms typically offer a larger selection of traders to choose from, giving clients more flexibility in terms of fee structure.

History Of Social Trading

People investing in groups is something that’s been happening informally for years. Traditionally, investment clubs would see groups of people meet in person on a regular basis, discuss investment ideas and pool their money to invest in opportunities. For example, an early investment club, the Mutual Investment Club of Detroit, was ​​set up in 1940. Memberspooled money to buy stocks, which was an expensive undertaking at that time and not accessible to the middle class. Tools like the leader board at first glance are extremely useful in identifying the most successful traders, therefore providing a good indication of people to follow. In theory, while ‘following’ and ‘copying’ other traders should take the pain away from investing, I could end up copying a series of poor investments based on chains of lucky novices.

Social trading allows both novice and experienced traders the opportunity to more easily overcome the learning curve and benefit from the best and most experienced traders. The idea of social trading was first brought into effect in 2004 by the company called Tradency. Due to the increased use in social networks, there became an increasing desire to utilize social networks in trading platforms. Now, more than ever social trading has become very popular among investors of all levels. As such, social trading offers less-experienced investors the opportunity to leverage the expertise of more knowledgeable and successful peers.

Benefits Of Social Trading

This way, they can benefit from the experience and trading decisions of many traders, rather than having to make all their own trading decisions. Copy trading is a great option for newbie traders or those with limited trading experience, as it can help them quickly learn about the market and make successful trades. However, it is important to remember that copy trading is not without risk, socialtrader tools and that each trader is still responsible for their own trades. Additionally, a copy trading system can lead to liquidity risk if too many traders copy the same trade. Thus, it is important to choose a good copy trading strategy that fits your individual risk tolerance. Overall, copy trading can be a great way to address market risk, but it is important to be aware of the risks involved.

For example, you could choose to copy only the trades of investors who have a proven track record of success or who trade in a certain asset class. Copy trading can be a great way to diversify your investment portfolio and get exposure to new ideas and trading strategies. The company’s flagship offering is the social investing feature, CopyTrader. Users can quickly find investors to follow and copy trades based on investor star ratings, coin interests, and performance metrics.

How social trading works?

The traders risk level, success, and history is all available for you to make an informed decision based on your needs. Copy trading platforms, which allow traders on social networks to receive information on the success of other agents in financial markets and to directly copy their trades, have attracted millions of users in recent years. This column examines the implications of copy trading for investors’ risk taking.

  • Some investors might choose to copy only the trades of a single trader, while others might build a portfolio by copying multiple traders.
  • New asset classes like non-fungible tokens may be influenced by social trading even more than stocks or cryptocurrencies, according to Hirsch at eToro.
  • What’s even better is that traders have an incentive to share their investment thesis, analysis of the market, and the reasons behind their trades.
  • Social forex trading can be especially beneficial to a new and inexperienced trader.
  • Innovative approaches to ESG screens and filters also attract investors who prioritize these aspects.

This is also a key factor to consider when choosing a social trading platform, as you want to be confident that the results you’re seeing are genuine. Look for platforms that have a clear track record of results over a sustained period of time, as this will give you the best indication of which website is likely to generate the most success for you. Another risk is that you may not have enough knowledge about the markets to make informed decisions about which trades to copy. If you don’t understand how the markets work, you could end up losing money. It’s important to do your research and only copy traders who have a good track record.

The Rise And Evolution Of Social Investing

It is usually a good idea for traders to consider risk and diversify their capital across many leaders and to pick a strategy that meets their time horizon. For instance, traders who want to place lots of short-term trades should find a trader that has this type of historical track record. If they are interested in trades that are held for multiple days, weeks or months, they should focus on traders who have transacted trades in this fashion. This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you.

History Of Social Trading

But thanks to social trading, such services are now within easy reach of people all around the world, irrespective of their financial backgrounds or experiences with financial markets. As the term suggests, social trading combines trading with a social-media dimension. Through the power of online communities, it enables users to share information with community members about financial markets and trading.

What are the different copy trading strategies?

Copier trader is a trader who copies the trades of another trader in order to mirror their success. In general, however, copy trading is considered to be a form of investment activity and is subject to the same laws and regulations as other forms of investing. This is a great way to make money because you can learn from the best and make profits without having to put in all the hard work yourself. The only thing you need to do is find a good trader to copy, and then you can sit back and watch the profits roll in. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

An offshoot of social networking, social trading has created a different way to test financial information. In the past, investors would focus either on fundamental analysis​ or technical analysis​. With social trading, however, traders can share information about the current market environment and offer insight into future market movements, thus driving trading decisions.

Also, copy trading can be used by experienced traders too, as a way of learning new trading strategies from others, and by that, increasing their success in the online trading market. Social trading is a popular way to access financial markets as it enables traders to replicate the positions of others and interact with their peers. There are different trading strategies that can be used in copy trading. Some investors might choose to copy only the trades of a single trader, while others might build a portfolio by copying multiple traders.

I have a stockbroker, why should I pay attention to social trading?

By the end of 2019, the company had surpassed 12 million users located in more than 100 territories around the world. EToro provides rookie investors with the opportunity to copy the trading strategies of leading traders on its platform. According to, social trading works by giving ‘…those with limited financial knowledge an insight into the stock exchange by allowing a real time analysis of individual trader performance. To address market risk, traders can use a copy trading platform to copy the trades of other successful traders.

Additionally, clients have the opportunity to communicate with experienced traders on platforms throughout the world. Therefore, traders have a great chance to talk with professional traders directly and not simply copy their strategies. Progressive platforms offer an integrated chat where you can monitor questions and responses given in real-time. “For those looking to improve their trading, eToro offers so much more than just a copy trading platform,” the company states on its homepage. “You’ll be joining a leading collaborative community of traders and investors—a place to connect, share, and learn. View millions of other traders’ portfolios, stats, risk scores, and more.

Social trading involves the free sharing and using of information amongst a group of traders. The information provides access to new trading ideas, risk management and client sentiment. Social trading integrates the exchange of information into an online discussion. It creates a community feeling as traders can work together to plan specific trading ideas.

Social Trading

In this situation, a fund manager may divide trades among sub-accounts based on lots or equity percentages. In comparison, MAM offers a variety of allocation strategies that let traders set the level of risk they want to take. Whatever the answer to that question, the army of retail investors behind these meme stocks certainly can’t be ignored. Last year, retail investors made headlines when moving markets by investing en masse in highly shorted stocks like GameStop and coordinating their actions online. And it is always recommended that investors conduct their own research on the specific markets to which they may choose to gain exposure, even if that exposure is ultimately achieved by copying other traders. In the end, this will be beneficial in choosing the most appropriate traders to copy.

History Of Social Trading

EToro makes this information especially visible, as you’ll see different color patterns and a rating based on how well an asset aligns with socially conscious values. You can also screen for socially responsible investing and ESG factors with a filter when searching for assets. EToro doesn’t have a traditional, detailed stock screener allowing you to filter by price-to-earnings, market cap, and so on. What it does have is a biggest daily movers list that can be further filtered by industry or exchange. Filtering the list will also display the sentiment of users on the platform with a percentage of people buying listed.

Who Provides the Trading Signals?

With copy trading, investors can choose which traders they want to follow and automatically copy their trades. However, it’s important to remember that there are risks involved, and not all traders will be successful. Still, for those who are willing to take the risk, copy trading can be a great way to make money in the financial markets. Copy trading is a type of investment strategy that involves copying the trades of other investors.

In 2010, eToro became among the first platforms that launched a “social trading” option in its software. The main focus of eToro, and later its competitors, was to allow customers to copy experienced traders and view the purchases and results of other clients. The 33-year-old is one of the “popular investors” on the brokerage platform’s program — a trader with a successful track record that other users can copy. New technologies are opening up opportunities, currently not yet open to retail investors, in the same way that past investment clubs allowed people to pool money to buy stocks.