Social trading definition
Social trading meaning
Social trading can be used by investors who do not have enough time or knowledge to identify profitable investments. It is a trading strategy which can reduce the trading risks for new traders, especially if the trader is not savvy in investing. It enables traders without any experience or knowledge to start investing and potentially earn a return.
Social trading explained
The process of social trading is rather a simple one. Through social trading platforms, a trader searches for other traders, who publish their trading strategies, ideas, and plans. The trader can also see the performance of different traders and even the degree of risk of their investments. After considering the people who could be copied, the trader starts to invest by opening and closing the same positions as the trader they follow, or using the same strategies. Social trading is performed through a social trading platform which enables the copying of other traders' activities.
What is social trading?
Social trading is based on social community communication, where traders exchange opinions and trading strategies. New or inexperienced traders have the opportunity to engage in investment activities by replicating the trading activities of others on the platforms. The main advantage of social trading is that traders have the knowledge of the entire community at their disposal. Social platforms provides numerous metrics which show the characteristics of the traders, such as risk level, profitability, trading experience, trades closed with profit or loss, etc.
One of the risks associated with social trading is that traders must trust the trading decisions made by others. The downside is that the entire risk falls on those who are following other traders as they are investing their own money and must bear the brunt of any losses. Of course, any gain will be taken by them as well.
Social trading vs. mirror trading
Because of the way social trading functions, it can be considered similar to mirror trading. While they do have many similarities, there are also some differences. The main difference is that with social trading, traders can communicate and interact among themselves. The traders can get information about the investment strategy of the traders they follow. This can be important if they want to learn how to trade independently in the future, or to develop their own investing strategy.