Social trading has been compared to social networking in many senses. However, instead of exchanging photos and sharing updates about lunch and new events members are trading stock information.
It is incredibly effective with the ability to improve investors’ return on investment by upwards of 30% according to MIT reports.
The Benefits of Social Trading
Community building is at the heart of the concept. The worldwide shared access to information and strategy allows for cooperative efforts in marketplace trading.
Using social trading interested parties can more easily enter into collaborative financial efforts and combine their resources forwards a similar goal.
When trading in this environment it is a “learn on the job” type of experience. You are actively trading and earning on your investment while learning from others with more experience.
This way you do not have to work through a program of training before having any activity in the marketplace.
1. Assess Regulation and Security
Regulation, first and foremost, boils down to loss protection. This is for both you and the broker and is one of the most important elements to research before all else when considering your options.
With these protections, a brokerage is also kept to strict best practices and you can be assured that any trade is under proper scrutiny.
2. Content Coverage
There was a point when different brokers were very specific and only allowed certain deals to be made but this has since changed and the market is a much more flexible place.
It is wise to select a broker with a wide range of coverage, offering access to many commodities. This will increase your chance of profit.
Bitcoin, while a popular trading prospect, has become increasingly technical. There is help out there for those looking to start investing in this and other cryptocurrencies, however!
3. Copy Trading
This is a big part of what makes social trading, “social”. Do you want to work to establish yourself as a name that others can ultimately copy and follow?
The practice of copy trading is essentially being established as an “expert” to the point that investors look to you and do just that. They copy your market habits.
There is a chance that you can make extra money selling information as well and that is something to consider, do you want to work to teach others or simply trade for your gains and leave it there?
4. Making Initial Trader Selections
When getting started with your investments and trading it is wise to find established traders to follow. There is a collection of effective guidelines to, essentially, vet traders by before following them.
A couple of large wins or a couple of profitable months do not offset a run of 9 to 10 poor months. Those gains could have been a stroke of luck or some other factor and the negative run reflects much more strongly on their ability.
You want to keep an eye on someone that has been trading for at least a year and has a positive, consistent record.
How Active Are They?
This can change depending on how active you want to be and how quickly you are looking to trade (short term vs long term execution). But the general rule is that you want someone active in at least the last five weeks.
More active is always better but within that time frame is the minimum.
Average Trade Sizes
This is looking at the average size of deals against the size of the entire account balance. You do not want to follow someone with a very high deal size when compared to their portfolio.
This can indicate huge risks being taken and could very easily spell disaster. A good number to stick around is a 10% deal size or lower.
Of course, you will always want to find someone who is recording consistent profits and larger profits but there is a little more to the records than simply that. You need to be wary of a 100% win record as well.
This can be an indicator of not properly closing out deals and not having numbers reflected properly. Look at how their profits trend as well, if they have a wild erratic trend they are very likely, simply gambling.
Hit the ground running with help from Top traders at Velox.
5. Risk Management and Stress
Aside from the technical aspects of the trading platforms and your configuration, you need to make sure you are personally prepared to enter into the trading environment.
You need to be ready to take a temporary loss and not make “emotional” trading decisions that conflict with your end goals and overall trading strategy.
6. Goals and Trading Style
Short term versus long term will make a big difference in the choices made. Short term or time traders are looking for quick executed sales and brokers that are offering “scalping”.
This is a more advanced technique of opening and closing positions in quick succession. It can hold a good deal of profit but the risk of loss is higher as well. Because of the more technical nature, it is not recommended for beginners.
For those either newer to the field or looking for a safer trading scheme, long term trades are the better solution. With these, you will want to pay closer attention to overnight and long term rates.
7. Determine The Best Platform
Each trading platform, including those not listed here, have their specialized benefits and should be researched to see what fits best with your investment goals.
Just as your trading style is one tool for success the platform you work with is equally as important.
Three most popular include:
If you are a beginner this is a perfect selection. The resources available for those just starting make getting into the swing of things very easy. Viewing and determining the best investors to follow is streamlined when using eToro
While a bit more in-depth, Spiking still allows for ease of integration into the social trading world. In fact, among the 170,000+ visible investors, there are names such as Warren Buffet available to view and follow.
This is a perfect resource for an individual looking to begin delving deeper into the world of trading. With its incentive and training programs, there are options to grow if the time is invested.
A community strong, cloud, and web-based resource, Trading View puts a heavy emphasis on collaboration and sharing of information. It is configured in a forum style configuration allowing for ease of communication.
Find Your Riches with Social Trading
It is time to put these strategies to use and begin in the investment markets like those before you. Eventually, you will be the one they are copy trading, years down the line.
But this is just the start! Stop by the blog at VeloxInvestments to educate yourself further on even more intricate aspects of the social trading world. Be sure to see how the Passive trading system can work for you and your financial goals.
Thinking of Investing or Trading? Why not just copy professional traders!
My name is Joseph Moricca, I run Velox Investments and I am an Investor on eToro and have been for a number of years.
Do you want to get involved in trading but don’t know where to start?
Do you want to Diversify your income or simply Make more money?
I have used eToro for a number of years but did not realise the potential to make a solid return consistently until I started copy trading!
If you want to find out how to make money online then read my Beginners Guide to trading on eToro.
To start RIGHT NOW, Sign up to eToro through the link below and take advantage of the free demo account! I mean really what do you have to lose from following my very simple strategy on a demo account! Literally nothing and you might find that you actual find a hidden GEM!
Other Useful Links for learning
- eToro Trading Academy
- Market information: The Motley Fool, The Economist, The Financial Times, Zero Hedge
Disclaimer: eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
This guide is intended for educational purposes only and should not be considered as investment advice. The author and publisher are not liable for any losses or damages you may incur as a result of you following the advice given on this page. The etoro.com layout and content may change since this content was published.