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What is social trading and why is it beneficial?

20th November 2017 Print

Social trading is far more than a buzz term. It is revolutionising the trading world. But what is social trading? And why is social trading beneficial? We’ll address what social trading is and is not, the benefits and risks of social trading and which social trading platforms you may want to use.

An Overview of Social Trading

Social trading is the intersection of social media and online trading. In short, social trading platforms are social media sites limited to traders. Social trading sites may be a portion of the trading platform similar to how many brands run customer-only forums. Or they may be their own social media sites, limited to traders, so that you can share information with other traders without receiving irrelevant updates on their kids and pets.

It is less clear whether a private group on a large social media site restricted to traders counts as “social trading”. A market expert’s newsletter, though, isn’t social trading. It is the ability to interact via social media with other traders at all levels that makes it “social” trading.

The Benefits of Social Trading

Social trading platforms run by the trading site deepen the relationship between the brand and the customer while keeping people on the site longer. The users of the platforms stay on the site longer per visit for the social aspect, and they are less likely to quit the trading platform because they are getting advice on what to do and what not to do. Other social trading networks are not run by a particular trading platform, but these sites make money from advertising to traders.

The benefits for users are clear. Instead of receiving the same market guidance by experts, you can read user generated content from a variety of experts as well as get explanations of the official reports. You can talk to people with more experience in trading a particular commodity or using a particular strategy, decreasing your odds of making a mistake. For some, the ability to collaborate on trades to the benefit of all involved or to copy the methods of a successful person is reason enough to join social trading platforms.

There are some risks to social trading. If you’re acting based on gossip and rumour, you’re prone to making a mistake. If there is a massive amount of buzz and you invest in something you don’t know, you’re probably going to lose money. Conversely, some social trading sites show each person’s stats, so you can verify they are an expert based on their financial success before you take their advice. That’s actually why some sites show the stats in the first place. This also reduces the odds of scammers trying to sell a scheme, when you can see whether or not they are active traders versus a new account promoting a set of trades they’ve never executed.

Your Choices in Social Trading Platforms

Since the choice in social trading platform is almost unlimited, choosing one can be tricky. Sites like InvestinGoal list their recommendations on top social trading platforms. The best social trading platform according to InvestinGoal, eToro, received that ranking due to the ability to seamlessly copy the trades of others and the key expert behind the entire site. However, there are literally dozens of social trading platforms.

Social media is just another great option for newcomers who are trying to get their feet wet. The fact that social trading sites are typically their own social media platforms, many of which are hosted by the trading companies themselves, makes them a great for beginners looking for guidance as well.