Everything You Need to Know About Social Trading and How to Benefit from It
Whether you’re trading stocks, forex, or cryptocurrencies, the process is challenging and requires significant time and effort. The pandemic has impacted the global economy substantially. Many people’s financial situation has changed, leading them to seek alternative measures to make money. According to CNBC, stock day traders‘ numbers increased exponentially during the pandemic. Trading of other asset classes also continues to grow.
However, the reality is most of these traders won’t make profits. Instead, they’ll incur significant losses. Trading requires knowledge and a comprehensive understanding of the market. Unfortunately, beginner traders don’t have these skills because they take time to develop.
That’s why social trading is a phenomenon that continues to become more prevalent in the trading world. Imagine if you could learn from other people’s experiences and mistakes; so you didn’t have to go through a painstaking process of trial-and-error. Social trading builds on this concept.
Crypto trading
What is Social Trading?
Social trading often pairs new traders with more experienced traders. The goal is for newer traders to obtain information from seasoned traders in real-time. They’ll often replicate what the veteran traders do to gain first-hand experience.
Social trading’s objective is to give a platform to seasoned traders to demonstrate their skills. As more traders learn about their skills, they follow them. Veteran traders gain influence and build followings.
In addition, social trading also eschews fundamental and technical analysis for user-generated data and analysis. Since traders share information in real-time, you can use another trader’s analysis to make trades. Thereby, social trading helps traders skip the hassle and stress of analyzing information.
How Does Social Trading Differ from Traditional Trading?
Social trading significantly differs from traditional trading. In traditional trading, traders perform research themselves. They evaluate trading opportunities by doing fundamental and technical analyses. Then, they anticipate market movements and make trades.
In social trading, that isn’t the case. Most beginner traders will follow the steps of a more seasoned veteran. Beginner traders will look at how seasoned veterans make their trades and replicate them. Doing so gives these traders more confidence because they know their decision-making has expertise behind it.
How Does Social Trading Work?
Many people compare social trading to social networks. That’s because it enables traders to collaborate with other traders and share information. You can use social trading platforms to connect with other traders like you would in a Facebook group. Then, you can share ideas, strategies, information, and more.
In addition, most social trading platforms also allow you to check a trader’s portfolio. You can follow your preferred traders to get live feeds detailing their trading activities. You can then use this information to make more informed trading decisions yourself. Moreover, as you gain experience, you can share your thoughts and ideas to help your fellow traders.
However, most importantly, social trading platforms thrive because they ensure you’re getting trustworthy information. These platforms will typically vet members to ensure they’re legitimate traders. By doing so, social trading platforms ensure the shared information is credible.
To illustrate how social trading works, here’s an example. Let’s assume there are two traders – Trader A and Trader B. Trader A shares on their platform that a prominent technology giant will be announcing a new product soon. Trader A hints the company’s stock price will rise.
On the other hand, Trader B negates the information stating the company is experiencing manufacturing problems. The trader also hints the company can’t fulfill existing orders, and its stock price will plummet.
On a social trading platform, you can assess the portfolios of both traders. You see that Trader A has recently purchased stocks in the company, substantiating their claim. You don’t find any actions that corroborate the words of Trader B. You can determine that Trader A is likelier to be accurate with their information. You can use this information to make your trades.
A trader examining price changes
The Benefits of Social Trading
Social trading has numerous benefits, including, but not limited to the following:
Reliable Information
Social trading platforms provide you with an excellent way to access reliable information. That’s because these platforms vet seasoned traders to ensure they’re credible. Moreover, you can view a trader’s portfolio to determine whether they follow what they preach.
Reduced Learning Curve
The most significant benefit of social trading is that it reduces the learning curve for beginners. New traders often have to go through a trial-and-error process before finding their feet in their chosen market. However, social trading eliminates that. Instead, you can follow the actions of an experienced trader and learn by watching the moves they make.
Gain Experience
Social trading allows new traders to gain experience quickly. That’s because they can follow a seasoned veteran’s trades and replicate them. Doing so enables them to earn and learn simultaneously. Once traders gain enough knowledge and experience, they can switch from being a signal follower to sharing signals themselves.
Community Experience
Social trading platforms are to traders what LinkedIn is to the business community. They are platforms encouraging collaboration, discussion, and information exchange. Traders gain numerous advantages from becoming part of a community. They can bounce ideas off one another. Likewise, they can find opportunities that mutually benefit the community.
Types of Social Trading
Various types of social trading exist. These include:
Signals or Tips
Social trading involving signals or tips refers to when traders receive information on market positions and signals from other traders or computer systems. They use this information to guide their next trading move.
Copy Trading
Copy trading is when newer traders follow an experienced trader and replicate their moves. To do so, you’ll need to select a copy trading platform. Then, you’ll have to find traders you want to emulate.
Forums and Profiles
Many social trading platforms incorporate forums and profiles. These create a community of traders sharing information, strategies, forecasts, etc. Collaborating with other traders and engaging in information exchange can help traders improve their profitability.
Cryptocurrency traders watching markets shift
Start Social Trading with Crystal Ball Markets
Whether you’re looking to start trading currencies, shares, or cryptocurrencies, you’ll need a top online trading platform. Although numerous online investment platforms exist, not all are equal. Crystal Ball Markets is one of the best social trading platforms around. Visit our website to learn more. Alternatively, register with us today to get started.