Social trading is one of the most amazing concepts in the Forex trading market that allow traders to replicate the success enjoyed by professional and successful traders in the industry. Social trading is virtually a new idea that is gaining immense popularity in the retail trading market, as it allows both traders as well as investors to find the best performing traders and copy their strategies for a nominal fee or a percentage share of the profits. Several mainstream Forex brokers have revolutionized the concept of social trading networks since the early 2000s, and offer exclusive social trading platforms that are specifically tailored for copying successful strategies in exchange for a performance oriented fee. Social trading helps in bridging the gap between the amateur and professional traders, as these social trading accounts enable a trader to start their trading career by carefully analyzing the trading behavior and patterns followed by consistently successful traders. Industry leading investors and Forex trading experts anticipate social trading networks to have an increased influence in the retail trading community for the foreseeable future. As a trader, you should certainly consider opening a social trading account if you are finding it hard to employ a consistently successful trading strategy. There are tons of social trading networks and social trading platforms that enable traders to browse through multiple traders in the market and choose an excellent trading strategy that promises to offer consistent profits with considerably lower risk.
How Is Social Trading Different From Managed Accounts?
Managed accounts allow investors to mirror trades according to a group of parameters set by the investor. Social trading networks, on the other hand, aim to provide an open platform for traders to interact with each other and share ideas, trading signals, technical/fundamental analysis, and allow traders to copy each other for maximum results. Social trading can be considered as a network of traders that collaborate through an online platform to tackle the markets in a positive manner. Some social trading networks only allow mirror trading, while other social trading platforms offer great amounts of flexibility to their community of traders for deeper interaction. Managed accounts possess several traits that are similar to a social trading account, but they follow a different concept that enables traders to control their investor funds through various managed account platforms.
Managed accounts are more oriented towards large retail traders and institutional traders that invest quite a significant sum of money in the Forex markets. When compared to social trading, managed account trading involves less interaction between the trader and his investor. Managed accounts are also considered passive in nature, while social trading induces more involvement and active participation from different market players. The profitability of mirror trading obviously depends on the account equity, the leverage, the lot size, and the frequency by which trades are reflected from the master account, while the profitability of managed accounts is dependent on the performance of a master account. In broad terms, both social trading, as well as managed account trading, have similar traits, but each platform has subtle differences that make them uniquely suited to different types of investment needs.
How To Join A Social Trading Network
Social trading platforms are available through Forex brokers as well as through several third party service providers that offer services such as mirror trading, copy trading, signals services, trading statistics, and market analytics. It is relatively easy to join a social trading network, as all you need is a Forex trading account and an initial trading capital. Some brokers provide the convenience of joining their internal social trading network without any additional sign ups, which help traders to start making money as soon as they open an account and make a deposit. Other third party social trading platforms require traders to connect their live trading account to a dedicated social platform to reap the advantages of social trading.
Drawbacks Of Social Trading Networks
Although social trading networks provide great opportunities for both amateur as well as professional traders to interact with other traders in the market, the risks of Forex trading is compounded due to the lack of any formal protection or regulation against high-risk strategies or financial scams. Social networks are highly notorious for being vulnerable to phishing attacks and financial scams, which may render more harm to a trader if they are not careful against such entities. Social trading performance may not always be indicative of real trading performance, as there have been several instances where past trading performance may be fabricated for luring in potential clients. It may also be difficult for novice traders to learn the exact mechanics of the market if they rely heavily on the trading performance of a master trader, and a majority of new traders will face difficulties if they are unable to learn the concept of Forex trading on their own.
Factors To Consider While Trading On Social Trading Networks
There are a few pointers that help traders to stay safe against the common scams and malpractices that are usually associated with social trading networks:
• Always choose a regulated broker while opening a social trading account. Make sure that the broker supports social trading, and that it doesn’t have any policies that clearly outline its attitude against any form of social trading strategies.
• Never take a trader’s word for granted. Always browse through a trader’s profile and consider all the aspects of his trading record before choosing to follow his trades or adopting his strategies. Preferably, select traders that have an established trading record for at least a few years of successful trading results.
• Always monitor your trading account and take some time to analyze the trading behavior to ensure that your account is not susceptible to any gambling mentalities. Trader’s psychology plays an important part in the success of a trader, and you should always protect your funds against any erratic trading decisions.
• There is nothing wrong in managing your trades, even if you are copying others. You should be comfortable while trading, and you can get out of trades if you are not satisfied with a position entered by a trader that you follow.
• Take some time to learn the art of Forex trading and try to become more independent in trading. To develop a successful trading strategy, you should have the ability to analyze the market on your own for entering or exiting the markets with the maximum profits.
• Always demo trade a new strategy and ensure that it is profitable over the long run. Never trust in stats and numbers of another trader, always keep a close watch on the performance of your trading account to whether the strategy that you adopt is successful or not.