Social trading sites and networks should enable traders to share their ideas, trades, success and failures with other traders.
Connect with other traders, discuss trading strategies, and increase their trading portfolio performance.
Social trading is the process through which online financial investors rely on user generated financial content gathered from various Web 2.0 applications as the major information source for making financial trading decisions. Social trading introduces a new way of analyzing financial data by providing a ground to compare and copy trades, techniques and strategies. Prior to the advent of social trading, investors and traders were relying on fundamental or technical analysis to form their investment decisions. Using social trading investors and traders could integrate into their investment decision-process social indicators from trading data-feeds of other traders. These social trading networks can be considered a subcategory of online social networks.
Social trading allows traders to trade online with the help of others and some have claimed shortens the learning curve from novice to experienced Forex trader. Traders can interact with others, watch others take trades, then duplicate their trades and learn what prompted the top performer to take a trade in the first place. By copying trades, traders can learn which strategies work and which do not work.
Despite the influx of new social trading platforms in the early 2010s, numbers still continued to increase as brokers see them as new growth engines for converting new and retaining old clients. Social trading has increases participation in the market and led to a greater volume of trades going through.
Unlike mirror trading, a method that allows traders to copy specific strategies, copy trading links a portion of the copying trader’s funds to the account of the copied investor. Any trading action made thenceforth by the copied investor, such as opening a position, assigning Stop Loss and Take Profit orders, or closing a position, are also executed in the copying trader’s account according to the proportion between the copied investor’s account and the copying trader’s allotted copy trading funds.
The copying trader usually retains the ability to disconnect copied trades and manage them themselves. They can also close the copy relationship all together.
Copy trading has led to the development of a new type of investment portfolio, which some industry insiders call “people-based” portfolios. People-based portfolios differs from traditional investment portfolios in that the investment funds are invested in other investors, rather than traditional market-based instruments.