We live in an era where we cannot complete our day without uploading anything on social media. Whether be it our meals, outings, meetings, parties, etc.
According to estimates, in January 2021, social media users reached 4.2 billion globally.
What if I say trading has also gone social?
Social trading is a relatively new phenomenon in the world of online trading. In 2007, the first social trading platform – eToro, was launched.
Even if we don’t know what social trading is, we probably use some form of it regularly. Whether it’s trading stocks, investing money, or whether you’re using a search engine to find a person or company, social trading has become a way of life.
According to a survey, in 2021, 42% of Gen Z said that they would approach social media influencers to educate themselves on trading.
What is social trading?
Many people out there are looking to invest their money but don’t have the time to learn about the different investment options. Social trading is an excellent way to do trading without having to spend a lot of time learning about it.
Social trading is a form of online investment where we can follow the trading activities of professional traders (who have experience in the markets and have been successful with their trades) and copy their strategies. We can do social trading through social media platforms/dedicated social trading sites/social trading apps.
It allows traders to connect, share insights and strategies, and copy the trades of others.
To get started with social trading, we will need to open an account with one of the social trading platforms. Then, we can start browsing through the profiles of other traders and find ones that we want to copy. Once we have the trader, we can replicate the trade.
We must be aware that not all traders are the same, some are more experienced than others, and some have better track records than others. It is essential to take a social trading review and research them before copying any trades.
How do people profit through social trading apps?
Social trading apps are becoming more and more popular, as they offer a way for us to make money while learning. They are also an excellent way for us to get started in trading, as they provide a way to copy the trades of more experienced traders.
Traders posts their thoughts, charts, news, market analysis, suggestions etc., through social trading apps, which can benefit us.
We can profit through social trading apps by imitating the trades of other traders and minimising our risk.
Not only us, but the professional traders will also benefit from our trade. Traders will receive a bonus every time someone copies their trade, which means members will earn money jointly.
However, we must remember that social trading does not guarantee profits; there could be losses too. We cannot become rich overnight, and we have to be patient and follow the traders who are more experienced and talented than us.
Benefits of social trading
There are several benefits to social trading.
- It can help us develop skills; by following the activities of more experienced traders, we can learn how to trade and make profitable investments.
- Social trading can help us reduce our risks. As we are copying the trades of more experienced traders, we can benefit from their knowledge and experience. We can learn from their successes and failures.
- It can also help to find new opportunities. If we follow successful traders, we can gain access to investment opportunities that we might not have otherwise known about. This can be a great way to expand our portfolio and get better returns on our investments.
Risks of social trading
There are a few inherent risks with social trading:
- Fraud: One of the most significant risks is that of deception. When trading with other people, it can be difficult to tell if they are legitimate or not. As a result, there have been many cases of people being scammed out of their money by fraudulent social traders.
- Overconfidence: Following successful traders can lead to investors becoming overconfident and making riskier investments.
- Trading too much: Social trading can lead to investors overtrading, leading to losses.
- Poor judgement: Social trading can lead to traders following the lead of others without doing their own research, which can lead to wrong investment decisions.
Social trading is a way of trading securities that allow investors to mimic the trading activity of experienced traders. Some people view it as a way to learn about investing, while others use it as a tool to generate profits.
When looking for a social trading platform, it’s essential to make sure that we choose one that is reputable and has a history of success. The platform should also be easy to use so that we can start trading right away.
Investors are also advised to take a social trading review before copying any trades.