This is a fast trend that is growing on Forex. Stock and other markets. Even toe that has been growing a lot lately the question “what social trading is”? is still not answered to all people. And how come its getting so popular? Some people might wonder if its worth the time to learn about the social trading and might feel a little bit nervous. DON’T DO THAT, once you learn what it is and the benefits from it you will be happy that you putted some investment time on this type of trading skills.
Its really similar to the social network, you know the one with selfies and lunch photos like on Instagram, twitter and Facebook etc. The difference is that on trading network people share trading results instead. It gives you the opportunity to find a successful trader that you like, just follow the investments styles strategies and the trades will be automatically copied into your account. If it turns out that you are a successful trader you can even become a signal provider and sell you investments strategies to other, you will get an extra income, is that great? Also, you never have to give out any personal information to the person you like to copy from. It’s also a huge benefit to be able to interact with other traders, share idea, success, mistakes and discuss the market situation etc.
How does social trading works?
The social trading networks has Signal providers that often get some compensation by a fixed monthly fee, a specific % of their followers or a spread from volume of assets under management profit for providing information and strategies live to others. Some trading networks are free, example MyDigiTrade and others, they get a regular broker commission instead. Now you may think how do I know that I can trust the results that they are showing? Because they are obliged to disclose all of their trades so you can be confident that you’re selecting actually profitable strategy and be aware of real financial results. This is one of the biggest benefit of social trading.
The positive side of social trading
Bellow you find a list of all the advantages of social trading:
You get a real-time results information by following other traders
A hole open concept to this world! Everything is reviled automatically, nothing can bi hidden. You can skip your own mistakes by learning from others and also se the benefits without taking to much risk.
The negative side of social treading
Bellow you find a list of the disadvantage of social trading
Some followers have been complaining about trades had being copied with high slippage (could happen because of internet connection or technical errors). But the good news is that some platforms has already solve this problem that’s why you have be careful also with provider you use for the services.
How do i find the best traders to copy?
You just follow the traders with best scores and results.
There is a main rating on all platforms with a quality score, better result gets highest score.
Business models of Social trading
The platforms often have their own social trading networks or different agreements with brokerages that makes money directly on spreads. When a social trading network has agreements with other brokers it gets compensation from brokers (brokers share part of their spreads with a platform with no extra cost for the traders). In this case the spread is depending on the broker so its really important to check the list over approved brokers and see that your brokers exist on the list, or maybe you can find a more suitable broker for your case.
To use to sign up to a social network that provides several of different platforms can also be more advantageously because they can attract followers from all the supported brokers.
A third alternative is subscription, in this case, both users and strategy vendors are charged a fixed monthly fee to use the service plus additional charges to follow each signal provider.
Regulations of social trading
Because it’s a really still a new concept some countries have not been able to complete the developing of final regulations, is still under progress in some cases. But most of the time social trading and copy trading is considered an acceptable investing activity and is acknowledged by most regulators:
UK Social trading – The social trading is all legal in the UK for both signal providers and followers. The rule to follow regulatory obligations portfolio managers it’s a must for the social trading platforms. So social trading is legal for UK signal providers and followers since they have issued recommendations where it classifies automated copy trading and mirror trading as portfolio management. This information is referred to the trading network the signal providers do not need a license.
EU Social trading – They treat the rules similar to the UK. Platforms need fo follow the rules of the social commerce services as portfolio manager. But also an example is that all strategies must meet a certain risk / reward ratio before being displayed to European traders.
Australia social trading – After two years of overviewing the market they have provide very clear rules about copying that got publicized 30 august 2016. It resulted in that ASIC is supporting the healthy development in the advisory market in Australia. It means that trading results varies under certain conditions, for example speed of internet etc.
USA Social Trading – Some of the regulations make it a little bit harder compared to other countries. They have a really restrictive economical regulation all toe the copy trading is not forbidden. According to the USA law the buyer cannot make the business safe through opening a trade in both directions at the same time, Ex: you are not aloud to have buy and sell positions in EUR / USD at the same time. Also, it you at some point will have two open stores in the same assets in the same direction you have to close them in the same way that you opened them. This rule is developed as a protection is a financial crisis will come in the future, so it makes the process a little bit more complicated. Therefore, some social networks do not allow American buyers but it does exist platforms that allow US residents to use copy trade and have developed a special mechanism for following the rules.
The connection between social trading and copy trading
This two trading often goes hand in hand, the main different is you get more opportunities to discuss the market situation and to interact with other users with the social trading. You can speak directly with accepted friends on messages and much more. Mean copy trading you are copying trades that is done automatically. In all social trading platform, they will always offer copy trading as a service as well because this is one of the biggest advantages when it comes to social trading.
Do you wonder what mirror trading means?
It is actually just another term to describe the copy trading. There is absolutely now different in these processes it’s just another name of the copy trading process.