The Concept of Social Trading

Social trading is a concept where less experienced traders can copy the trades of more experienced traders, usually within the confines of a social network. The philosophy behind it is to allow less experienced traders follow the trades of the more experienced ones, and understand from the mentorship provided by the Leader traders, the rationale behind their trades.

This is a very good concept, if implemented to the letter. However, the experiences of many traders across a wide range of social trading networks shows that many of these social platforms are focusing too much on a “copy and paste” model of social trading, which takes the “social” out of the trading.

So what’s really going on? Many traders who join these networks looking for a way to start making money immediately and learning the ropes as they move on are finding out that they are not really getting what they pay for. It is therefore important for every trader joining a social network to ask the basic question: is social trading for me? To answer this question, let us look at the ideal situation for Forex social trading and take a look at the advantages and disadvantages. Traders can then make a judgment of whether social trading is for them or not.

 

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Social Trading: What It Should Be

What is the ideal situation of Forex social trading?

  1. Social trading should make it easy to achieve success in the market by monitoring and following the Leaders. It is expected that the Leaders should actually be professional traders with a sound history of profitability in the market.
  2. There should be a social component to the entire process, which means that Leaders should be available to discuss trades and outcomes with Followers for the learning experience of everyone. Two heads (or in this case, multiple heads) are always better than one.
  3. Due to the fact that social trades are generally executed on the same platform, it makes it easier to monitor the transparency of the broker in terms of correct pricing of assets, obedience to SL and TP levels without price manipulation and transparency of other trade conditions.

 

Social Trading: What It Is Not

Unfortunately, there are instances where these social trading objectives are not fulfilled. There are also some inherent disadvantages.

  1. Selection of the right platform to use can be a challenge for new traders, as all platforms are not created equal. There are social trading platforms which are outright scams.
  2. Many social trading platforms have effectively abandoned the social component of the entire process, leaving their platforms to be dominated by Leaders who are only interested in what money they can grab from Followers and not what they can contribute to the system.
  3. Then of course, the approach that many Followers have towards social trading may not lead to an enhanced development of trading skills. Many Followers on social trading platforms are more interested in the signals they get than in the learning and mentorship component of the venture.
  4. Many social trading platforms do not pay attention to risk management practices. Some platforms do not apply a cap on how much capital can be used to follow an experienced trader.
  5. Beginner traders may have difficulties understanding just what social trading is all about.

These disadvantages certainly will throw up a lot of questions in the minds of traders who are considering joining the social trading networks. So the question you must ask yourself if you are in this position is: is social trading for me?

 

Is Social Trading for You?

Social trading is for you if you have the following ambitions:

  1. You are interested not just in making money from someone else’s expertise but also want to get mentors who can groom you and teach you the techniques of forex trading.
  2. You have an analytical mind to question every decision that is made in the execution of a trade, until you have obtained a satisfactory answer to justify the execution of any such trades. In other words, you want to know the “why, where, when, what and how” of forex trades.
  3. You do not have the money to attend some of the expensive forex training seminars, many of which never really deliver on teaching traders the rudiments of trading. The CEO of a proprietary firm in the UK had once said it takes a minimum of 18 months to train a trader to become profitable. You are more likely to get such grooming on a truly interactive social trading network than on a one-day paid seminar.
  4. You can do self-study and review of traded positions, then come up with intelligent questions which you can ask on the social trading platform you are in for the benefit of everyone.
  5. You understand some of the basic components of social trading such as risk management, Leader trader selection, performance evaluation, etc. These are skills required to select Leaders whose trades can be followed for continuous performance.

If you have these attributes, then social trading is for you.

 

Who Is Social Trading Not Meant For?

If you have the under-listed attributes, then social trading is not meant for you.

  1. You are only interested in trade alerts for money. You are better off subscribing to a trading signals service or simply join a copy trade platform where trades are copied to your account by a robot without human interaction.
  2. You do not have the time to study past trades and understand why certain trades were done in a certain way.
  3. You have no knowledge of the performance metrics used in selection of Leader traders to follow, and you are not interested in learning about them. Perhaps, you feel it is not an important piece of knowledge to acquire. You are better off not attempting to join a social trading network because you may end up picking the wrong trader to follow and have your account decimated.
  4. You prefer to attend several one-day forex seminars or keep jumping from one strategy to another, looking for the proverbial Golden Fleece. Such an attitude will only translate into jumping from Leader to Leader on a social platform, which will produce financial ruin.

Sadly, there are numerous Followers on social trading platforms with these attributes. This is why there are still many people searching for success on social trading platforms and they never get there.

 

Conclusion

It is not too late for attitudinal changes with respect to social trading. Traders can still develop the right attitude and pick up the right attributes to make themselves candidates for social trading.