Social trading can be grouped as a branch of copy trading. We live in an era of technology, and people spend much time on social media connecting with family and friends. Social trading platforms use this concept of connecting through social platforms, which lets users track the trade decisions of other investors and execute trades by mirroring them.
However, any newcomer should follow specific guidelines to get good results from social trading. This article explains social trading and social trading platforms, and briefly covers the influential factors, how it works and a simple social trading approach.
Social trading platform: top 3 influential factors
Social trading lets investors track existing orders from professional traders on specific trading platforms. It helps to understand the concept first. The three most influential factors in social trading are:
- Estimation according to your plan
- Choosing the best platform and signal source
- Understanding the logic
Estimation according to your plan
When you want to use any approach to profit from the financial market, you need a plan. If you want to trade on social trading platforms, first estimate your budget and time horizon. Do some primary research to check whether your investment amount can realistically generate the income you expect.
Choose the best platform and signal source
Social trading requires a specific platform. Many social trading platforms are available, with different features and communities of professional traders. Choose the platform carefully and check the portfolio of the signal provider you may rely on when making trade decisions.
Understand the logic
Understand the concept behind the professional trader or signal provider and the method they use. For example, if you want to take part in social trading and open swing trades, choosing a trader who scalps may not suit you.
What is social trading?
Social trading means executing trades by following the decisions of expert investors. Investors usually do this on specific social trading platforms, where users can follow particular traders and execute trades automatically.
Social trading is similar to copy trading, but the difference is that you can follow and interact with other traders as well as copy their trades and learn from them. Social trading is not limited to one website or app. It includes many other features and opportunities; for example, social trading hype was among the factors behind the GameStop stock surge in 2021.
How does social trading work?
Users sign up to a social trading platform, choose traders they like and follow their strategies, depending on their return expectations. It happens through a few simple actions, and many platforms offer features that make these activities more efficient.
How to choose a social trading platform?
The idea of social trading is straightforward: you find a trader who shares their trade ideas and research on a platform, and the platform provides an interface that lets you act on those ideas with a single click.
Focus on historical performance and risk measurements when choosing a profile to follow. Be careful when selecting a platform, and confirm it lets you check the profiles of professional traders. You can then choose a top performer and invest your capital, or follow strategies based on calculation methods, past performance and risk ratios.
A simple social trading approach
You start by funding your account and choosing a master trader to follow. Platforms usually offer two options: "Copy with open trades" and "Copy without open trades."
Copy with open trades: When you choose this option while creating a new investment, it opens positions matching all of the master trader’s currently open positions.
Copy without open trades: When you select this option, it copies the master trader’s trades only as they execute new orders.
We suggest understanding the logic of the master trader to see the concept and its potential before choosing to follow anyone. For example, you may choose a trader who opens a buy position when the price moves above a 50 EMA line and a sell position when it moves below, which usually applies to smaller timeframe charts such as 5-minute or 15-minute charts.
Bullish trade scenario
You enter the buy trade when the master trader’s signal arrives.
Entry
When your chosen master trader executes a new buy trade, it mirrors in your account automatically with the parameters you set.
Stop loss
An initial stop loss is set automatically below the current bullish momentum.
Take profit
The trade closes automatically when the price moves below the EMA line.
Bearish trade scenario
You enter the sell trade when the master trader’s signal arrives.
Entry
When your chosen master trader executes a new sell trade, it mirrors in your account automatically with the parameters you set.
Stop loss
An initial stop loss is set automatically above the current bearish momentum.
Take profit
The trade closes automatically when the price moves above the EMA line.
Risks and advantages
| Risks | Advantages |
|---|---|
| You can lose your capital if you don’t choose good performers. | You can potentially grow your account faster by following successful traders. |
| You need to monitor the amounts you invest and make sure they match your plan. | You can diversify your portfolio through social trading. |
| You may not know when the master trader will execute an order, so you rely on their trade decisions. | It lets you learn when you understand the logic behind the trade decisions. |
Final thought
Social trading suits anyone who can spend some time to earn extra, including newcomers, as it lets you learn trading strategies from expert traders. However, past performance does not guarantee future results, so control your risk by checking the master traders’ profiles and choosing wisely.
