The Concept of Social Trading

Social trading in the binary options market has been around for a few years now. Pulling from the success of social trading in the forex arena, social trading in binary options had a softer landing, as it came into the market when the general idea behind social trading was already understood by market participants.

Social trading allows new traders in the binary options market to follow more experienced traders using their performance stats as the benchmark for selection. Thus the binary options social trading community is made up of:

  1. Providers: these are the traders who provide the trading signals
  2. Copiers and followers: These are the traders who follow the copy signals/trading signals sent by the providers.
  3. The social trading platform providers, who could either be third party companies or binary options brokers themselves.

The community usually has a worldwide distribution, allowing for exchange of ideas, financial data techniques and strategies.

 

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The Providers

Providers are the experienced traders with proof of successful trades over a long term. This means that to be a Provider, you must have a history of profitable trades on the binary options social trading platform for at least one year. Providers expect to be compensated for the trade alerts they send out, and so charge on a subscription basis for their signals. These fees are paid for by the traders that copy or follow their trades. The prices charged by providers are evened out in such a manner that there can be no exploitation of followers.

 

Providers cannot come together to form a kind of price monopoly on the network.

 

If a Provider is very successful, it is likely such a Provider will attract more Followers. The statistical data which are used in evaluating and positioning traders on the Leaderboard are taken directly from the trading account of the Provider which is domiciled with the brokers on which the social trades are taken. This ensures the legitimacy of the results showcased for Providers on the social trading network. These data are constantly recalculated as Providers take trades. Therefore, the positioning of Providers on the Leaderboard changes constantly.

 

Becoming a Provider

Becoming a “Provider” means you provide binary options trade signals for others to copy to their accounts. You offer paid signals to followers or copiers. Usually, payments you receive as a Provider are split between you and the social trading platform provider. For instance, if you charge a $100 monthly fee for your signals, and a trader decides to copy your signals, the trader will be prompted to pay $100 to copy your signals for a month. Usually, you only get a portion of this money, as the rest goes to the social platform provider. Once payment is confirmed, this is sent your Provider account. You will only be able to cash this money according to an agreed payment cycle with the social trading network providers.

If the copier or follower was referred to the social trading network via an affiliate, then the affiliate will also get a share of the monthly subscription fee, according to a ratio set by the social trading network provider.

 

The social trading platform provider gets a portion of any monthly subscription fees to enable them offset the costs they incur in maintaining their servers, the platform, programming costs, cost of platform development, etc.

 

As a provider, you must have had an uninterrupted profitable trading history for at least 12 months. When you decide to offer services as a Provider, you will be asked to provide some relevant details in order to get listed. Only the best Providers end up being listed on the Leaderboard; it is a very competitive space and you need to be really good to get the needed visibility that will sell you and your services.

 

The Copiers/Followers

Copiers and Followers are those traders who do not have much experience with trading binary options, and therefore opt to receive trade direction from the Providers. Copiers opt to have trades automatically executed on their accounts, while Followers opt to receive instant notifications from Providers for onward manual execution on their platforms. Copiers and Followers have to pay a subscription fee in order to receive the Provider’s services.

 

Becoming a Copier/Follower

Being a Follower and a Copier on a binary options social trading platform are two different things, even though some authors like to lump them together.

Choosing the Copier option means that you choose the settings to have all trades taken by the Provider automatically executed on your account, using the same parameters. All entries and exits, trade types, expiry times, etc, are implemented at the same time that the Provider performs them. Usually, there is a delay of a few seconds between the Provider’s entries and the Copier’s entries. The only parameter that can usually be changed is the investment amount put into each trade. This is to allow the Copier to set amounts that reflect risk management with regards to account capital size. Real-time notifications for each trade implemented is sent via desktop notifications, SMS, email, push notifications.

 

Followers subscribe to receive trade alerts from Providers, but have to implement the signals on their accounts manually. Notifications of signals are received via SMS, email, desktop as well as push notifications.

 

There are advantages and disadvantages for the Copier and Follower models. For copiers, the major advantage is the avoidance of unnecessary delays in implementing signals. In binary options where even one second can make a difference between winning and losing a trade, timing is crucial. Copiers therefore have an advantage here. Followers may encounter delays in implementing signals which can hurt their outcomes. However, Followers have better control of the entire trade process, something which Copiers do not have.

 

Social Trading in Binary Options: Unique Points to Note

Let us understand the various aspects of the community members, and how to maximize the opportunities of being a Provider as well as a Copier/Follower.

  • Binary options are unique, as there is a time factor which must be accounted for in addition to correct prediction of asset behavior and direction.
  • Some binary options trades are very short. Therefore, it is possible to have many trades implemented on the social trading networks.
  • The reward-risk ratios in binary options are less than what is obtainable in forex. A binary options trader must win at least 2 out of 3 trades to be profitable consistently. Therefore, traders with a win rate of at least 70% must be the ones chosen by Copiers/Followers. This is indeed a tall order, but is necessary to ensure profitability.
  • The Risk Score in binary options is very important. Follow or copy Providers that use Risk Scores of no more than 5/10. Risk Scores of between 2 and 4 out of a possible 10 are the most desirable.

 

Conclusion

Those who decide to participate in the binary options social trading network can decide to become Providers or Copiers/Followers. Providers must have a long winning streak and should be able to have a 70% win-rate for their Followers/Copiers to be profitable. Copiers and Followers must not only choose their Providers carefully, but must also evaluate their performance even after choosing them to ensure that they always have the best services for their money.