Whether you are a new or experienced investor, social trading offers many benefits when learning about the stock market.
It is an efficient way to access key insights from fellow traders, and it allows you to engage in a meaningful community of investors who are thoughts and ideas.
This article explains everything you need to know about social trading and how to get started.
Social Trading Definition
Social trading is an effective way for investors to engage in financial markets by mirroring the positions of thought leaders, peers, and experienced traders. People can gather opinions and financial content from articles, sites, and videos to guide their investment decision-making.
Social trading not only helps people make money in the stock market, but it also allows them to learn at the same time. When replicating the actions of peers and thought leaders, investors can learn fundamental techniques, trades, and stock market principles.
How Does Social Trading Work?
Social trading is comparable to social media networking. However, it is more about sharing investment ideas on a trading network, rather than sharing life highlights.
Not only does it provide quick and efficient access to the stock market, but it is an excellent learning opportunity for beginner investors.
With the rise of technology and information sharing, it is relatively easy to apply the techniques and ideas of the world’s smartest investors. Social trading can take place on a social media platform, or it could involve applying individual fundamentals, elements, or practices.
Some platforms are dedicated solely to trading strategies, equipped with mirror trading or copy trading features.
Traditional social media networking platforms allow a social trader to subscribe to a thought leader’s channel. Typically, the host will publish a live broadcast with an opportunity to copy the individual trading strategy.
So, why would the experienced trader want to give away their secrets? In the stock market, individual investors are not necessarily competing against each other. Everybody can “win” by generating a positive return for their portfolio.
Oftentimes, the host of these channels will receive rewards in the form of money, status, and social media following.
A lot of the social trading platforms have leaderboards for success rating, following, and popularity.
Benefits of Social Trading
There are benefits for all parties when it comes to social trading. Below are some of the more notable reasons why someone would engage in social trading.
Learning the Ins and Outs of Trading Market Quickly
The trading market can be complex. Therefore, it may be tough for an individual to know where to start in educating themself.
With the help of social trading platforms, one can become a professional investor for a low cost in minimal time. The platform provides direct access to experienced investors for a quick and efficient lesson.
Earn a Return While Learning
Social trading is all about learning through practice. The top social trading platforms allow beginner investors to learn from experienced ones. At the same time, these traders can earn a return on their investment by replicating the trades of the experts.
As a result, social traders do not have to wait until they learn all the information to make money.
Direct Access to Transcendent Trading Information
There is infinite information on the internet when it comes to trading and investing. Therefore, it can be challenging to know where to start.
With a reliable social trading platform, everything you need is all in one place. The host of the social trading channel can guide you toward grasping all the necessary fundamentals.
Participate in a Judgment-Free Investor Community
Social trading involves a group of investors learning from a single experienced investor. The best platforms help form an investor community where you can engage and share information with fellow investors. You can also partner on various ventures and bounce ideas off each other.
Social trading is a beautiful concept because it connects people from all over the world.
Social Trading Tips to get Started
Now that you understand the question “what is social trading?”, how do you get started?
Below we detail where to find the best social trading platforms and a couple of the key principles you will learn along the way.
Choose a Quality Social Trading Platform
We discussed how platforms are the vehicle toward social trading success. Here are several reliable social trading platforms for you to investigate:
Mirroring the trading strategies of an expert could be the most efficient way for you to begin the social trading journey. However, you cannot assume that the instructor has done their due diligence or the optimal amount of financial analysis.
Through detailed technical analysis, you can pinpoint the right entry points and timing for markets like commodities, indices, and forex.
Third-party entities like PIA-First and Autochartist can provide reliable expertise and analysis on some of the most effective trading signals.
Market sentiment is one of the most popular methods to find inclinations and trends of other investors and traders.
Market sentiment provides a summary of the market’s mood, but it also tells you when and what companies are being traded.
Assessing market sentiment can be a challenge, but here are a few factors that convey the optimism or pessimism of other traders:
- Commitment of Traders – the Commitment of Traders (COT) report displays the short and net long positions of traders (published by the Commodity Futures Trading Commission)
- Volatility Index (VIX) – measures the stock market volatility and tracks option prices from the S&P 500
- High/low Sentiment Ratio – calculates the amount of shares that are at a 52-week high compared to the shares that are at their 52-week low
Yes, there are risks that come with investing in the stock market. However, you can increase your chances of long-term success by doing consistent research and executing.
There are many routes to go when it comes to social trading, which is why you must perform due diligence in the right people to follow.