What are Social Trading and Copy Trading

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Copy Trading – Beginners Guide to Trade Like the Pros!

Copy Trading is basically a way to let amateur traders, or complete beginners, automatically copy the trades of more experienced traders.

Also sometimes known as ‘mirror trading’ or ‘auto trading’, it lets you browse through the profiles of experienced traders, and see their trading statistics. When you find one you

like, it lets you set your account to automatically copy all of their future trades.

Who offers Copy Trading?

There are an increasing number of sites and exchanges offering copy trading, as more and more ‘retail investors’ (non-professionals) enter the marketplace looking for a way to invest.

To list them here would mean updating it constantly, as the market is growing so fast. I personally use Etoro for Copytrading as it’s the fullest featured and simplest to use that I’ve come accross so far. It also has the largest user base, so there’s more people to potentially copy.

Does copy trading actually work?

How much does it cost?

On Etoro, Copy Trading is free. You pay the normal spread fees for each trade, and there are other fees associated with trading, but there’s no charge to copy someone. The people you’re copying get incentives from Etoro for having copiers, so it works for them too.

Can people copy me?

The people you copy are called “Popular Investors”. If you think you’re good enough at trading, and would like to give it a try, you can sign up to their Popular Investor program.

Is it risk Free?

Nope, it’s still trading, so assets can go either up or down in value. Learning to pick the right investors takes a little time, but all their statistics and history are there in full view.

How copy trading developed

Let’s go back a bit. In the past, if you wanted to invest you had to find a ‘broker’ who you’d pay commission to make trades on your behalf. The trades could be buying or selling stocks and shares in companies, or a range of other investments.

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You could either tell the broker what to buy, or take their investment advice or just let them trade for you.

This is how things worked for a long time. Trading was a closed world in many ways, and brokers acted as its gatekeepers. The rest of us just looked on as a small section of elite society seemed to be making a lot of money in the financial markets.

The rest of us didn’t understand how, and didn’t really think we ever could. It was a rich person’s world.

Trading floors and Strange charts

The other traders we saw were all busy yelling at each other in strange rooms and staring at numbers on boards. Trading Places was a great film, but really didn’t help us all feel like we could belong there. As times moved on, we saw lots of computers, and incomprehensible charts. Things had changed, but they hadn’t gotten any simpler. Why has that guy got 6 computer screens!? It looked more exclusive than ever.

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The evolution of trading technology

From the old trading exchange floors, to the sleek glass offices was quite a jump. Computers had won, and everything went digital. The internet appeared, and trading floors were on the wane.

The old shouting and yelling in the big trading pits of New York, London and Chicago were replaced by computers processing information at unimaginable speed, and traders around the world glued to their screens. Everything had changed, except for the wins and losses. Trading was still trading, and people won and lost fortunes on the money markets.

Social Media Arrives

In an unrelated development, faster internet speeds and better websites facilitated the rise of social media, and it didn’t take everyone long to get on board.

Within a decade, social media has become an integral part of daily life. People have now grown up using it, and the ‘language’ of social media is now so familiar we all take it for granted.

We know what someone’s ‘profile’ is, how to ‘follow’ them or ‘comment’ on something – we understand building digital relationships and having everyone in one big communal digital space.

SOCIAL TRADING IS BORN

As soon as we were all used to social media, someone had the bright idea of combining the features of our favourite social sites with Classical trading, letting everyone join the trading community.

Now everyone had access to live markets, trades happening in real time from around the world, and the ability to share information with each other about what they were up to.

It was never possible before – the technology just didn’t exist. And now, the closed world of trading was made wide open, and the ‘Retail investors’ (as opposed to the ‘professional investors’) started to take note of this sudden access to the playground of the rich.

It was time for everyone to get their piece of the pie. the problem is, trading is still just as difficult as ever, so someone came up with yet another, possibly even brighter idea.

Differences Between Social Trading And Copy Trading

The way I see it social trading is enabling anyone to copy a trade or an idea from anyone else

The way I see it social trading is enabling anyone to copy a trade or an idea from anyone else in the social network where copy trading is the ability to copy a complete strategy from a trader or a group of traders and that strategy can be pre-vetted or can be self selected by a community of traders but the act of copying is done to the complete strategy as oppose to individual traders or idea.

Social Trading:

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Social trading is more suitable in my opinion to the novice trader, someone who is looking to learn how to trade and is looking for good trading idea. The main benefits of social trading is that it significantly cuts the amount of time it takes a novice trader to analyze the market as he or she is offered a collection of ideas of other traders that have already analyzed the market and are already in the market. Social trading is a more effective way of trading for someone who is just learning the market could use some social support. The best use in my opinion of social trading is to leverage ideas of others as supporting or objecting to ideas you have and develop on your own, the best way is to treat this like an indicator and use the data in order to make an independent decision. One of the cautions from Social trading is to enter a situation where the blind leads the blind and therefore it’s important to use the information as part of a decision making process and not blindly copy ideas other individuals have.

Copy Trading:

Copy trading is suitable for individuals that like the market but don’t have the time to learn to trade it or don’t feel they can be successful trading it in the long run. You can think about copy trading as a simpler form of investing as oppose to trading and it’s important to approach it with the mindset of an investor and not the mindset of a trader. There are some important aspects that one should consider before copying someone else’s strategy and amongst them has to be a good understanding of the strategy and the risk parameters of the strategy being copied but cost, compensation scheme, accuracy in reporting performance, due diligence process over the providers etc. also have to be taken into account. Copy trading offers a level of transparency and control that is unparalleled of in the financial industry and this is the reason it’s gaining so much traction these days.

Social Trading and Copy Trade

Forex Social Trading and Copy Trade

Forex social trading enables Forex traders to interact in real-time, sharing knowledge, strategies and methods. Less experienced traders can leverage the help of traders with more experience and even copy their trades and techniques.

They can actually subscribe to actual trading signals and have them execute on their own accounts. This is known as copy trading. To learn the more about Forex trading check out our Forex tips.

History of Copy Trading and Social Trading

A primitive form of copy trading began when some traders would communicate out in newsletters when they were going to open a trade. They would send out an email to their subscribers to let them know it was time to buy or sell.

When the time came to reverse the order, an e-mail went out and the positions were closed. Later some traders would use this same basic concept, only communicating with the other traders in a chat room.

For this to work, you had to trust the skills of the trader who was calling the shots. There wasn’t really much to go on except personal experience, anecdotal evidence of those who had copied him or the trader’s personal reputation.

As technology advanced, replicating a trade from one account to others became possible. Forex platforms could track the success of the strategy and record all kinds of metrics so that everyone could see how successful it was.

Anyone could subscribe to these strategies, and the same signals that would be executed in the original trader’s account could be executed in the account of the subscriber.

The next step beyond subscribing to a trader and having his trades automatically executed in your account is to interact with that trader. It’s sort of a blend between copy trading and social media. You can observe others trading and duplicate their trades on your own.

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