Social trading is a popular way of buying and selling assets based on the strategies of others, mostly experienced traders, better than you. It gives access to financial markets as it enables traders to replicate the positions of others and interact with their peers. Discover how social trading works and the risks involved.

What is social trading?

Social trading refers to a trading method that allows investors or traders to replicate and implement the strategies of their peers or more seasoned traders. While the majority of traders conduct their own fundamental and technical analysis, there exists a group of traders who prefer to observe and mimic the analyses of others.

Often, social trading is regarded as a type of social network since it facilitates interaction among traders, allows them to observe each other’s trades, copy trades, and, most importantly, understand the decision-making processes involved.

How does it work?

The functions of this kind of trading is by providing quick access to financial markets, allowing both novice and experienced traders to share strategies and replicate each other’s trades. In fact, recent advancements in technology and platforms have simplified the process of becoming a social trader. You can either utilize a comprehensive social trading platform or incorporate specific aspects of the approach.

Some traders may opt for a fully integrated platform, which supports comprehensive sharing of trading strategies through copy trading or mirror trading features. Similar to a social networking site, a social trader can subscribe to another trader’s channel, where their positions are displayed on a live feed with the option to mimic their trades. For example, if trader A makes a trade, trader B will automatically execute the same trade, leading them to progress together.

The motivation for experienced traders to disclose their strategies is often linked to financial rewards and recognition – social trading networks typically feature leaderboards that highlight popularity and success rates.

Does social trading eliminate trading risk?

One of the biggest mistakes a social trader can make is believing that engaging in social trades completely eliminates risk. It’s crucial to understand that all trading activities come with risk (likely involving risk management), and traders may inevitably incur losses if thorough fundamental analysis is neglected. Interestingly, placing trust in another person’s judgment while still bearing the risk of potential losses is seen as a significant drawback.