Social Trading is Not Easy: Why Is This So?

Many people want to trade forex and binary options, and find that they are incapable of making money because they do not have the knowledge or the skills to do so. Many of these wannabe traders do not have the time required to invest in acquisition of knowledge or skills to trade the financial markets. For these ones, social trading seems to be the easy way out.

What could possibly be hard about social trading? Simply copy or follow a successful trader and replicate their success. For those providing alerts, what could be easier than simply showcasing your profits and watch the large pool of copiers and followers practically show up at your doorstep with money in their hands, pleading to tap into your success.

These scenarios make social trading look like the El Dorado of the financial markets. But a closer inspection shows that social trading is not as easy as it looks. The article represents an account of the experiences of a social trader who has been on the two sides of the divide.

 

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Why Social Trading is Not Easy

Social trading is not easy for followers/copiers and leaders alike. Here are the main reasons why social trading is not as easy as it looks.

 

Choosing a Good Trader

Social trading platforms know that the process of choosing a trader that will give you sustainable and consistent results over a long period of time is the hardest aspect of social trading. That is why they want nothing to do with the process and extricate themselves from this responsibility with all manner of disclaimers. Left with the responsibility of choosing the traders that will deliver profits for them via social trading, traders who have very little or no experience in understanding or interpreting the performance metrics for each trader find themselves unable to choose the proper traders. They get taken in by the profits displayed on some profiles and do not bother to check on certain metrics such as the risk score. Trader selection is the hardest part of social trading from the Follower’s perspective.

 

Evaluating Traders

You cannot simply choose a trader, integrate their trades to your account and simply sit back to wait for money falling from the sky. You have to constantly monitor what is going on with your money. It is hard work trying to make sense of what the trader you are following is doing. Sometimes, you may see some crazy action on your account which may startle you. You are paying money for this service. Therefore, you must continue to search for Leaders who have astounding performance. If you see one, you must be willing to get rid of any underperformers you are following so as to get value for your money.

 

Calculating Your Risk

This is a problem which makes social trading a hard undertaking. Many traders who follow others are completely bereft of understanding of how to calculate and manage their risk. A good example of this is the social trading in the binary options market. How do you calculate your risk in binary options social trading? Successful binary option trading requires that the Leader being followed must make 2 profitable trades out of every 3 trades taken. This pattern of profitability must be continued for at least 12 months, giving a minimum profit ratio of 66%. Followers may visit a binary options social trading platform and discover that in the entire Leaderboard, very few Leader traders, if any, may make this percentage. How do you decide who to follow under such circumstances? Is this not hard work? This is one instance where social trading is not easy: being presented with impossible stats that may not make for successful trading.

 

Coping with Loss of a Leader

There have been instances of very successful Leaders suddenly disappearing from the social trading platform, either as a result of illness or death. In such instances, a Follower or Copier who may have been basking in the previous success stemming from following the trades of such Leaders may find themselves stuck. Is it possible to replace such good Leaders from an existing pool? Theoretically it is possible. However, human beings have a tendency to stick to what is considered familiar. Human beings also tend to be resistant to change. These human instincts make it difficult to transit from the familiar into the unknown, which is what happens when a change is made from one Leader to another.

 

Inability to Sell Signals

It is not only followers and copiers who may find social trading not to be an easy venture. Leaders also have similar problems. Only the best of the best are listed in the Leaderboard, where followers and copiers usually make reference to when searching for Leaders to follow. Therefore, a Leader who does not find his or her profile on the Leaderboard may end up being hidden among the thousands of unheralded leader profiles that hardly get seen by followers. Without followers or copiers to pay for your signals, you are basically done as a Leader. The essence of providing alerts is to get paid for them. Of what use is it being a Leader and providing signals when your profile cannot be seen by those willing to pay for your work?

 

Maintaining Leader Status

Being a Leader requires you to post consistent profits for at least 12 months before you even qualify to apply to be listed. This is very hard work. It means you cannot afford any bad days, no holidays, timeouts or breaks. You have to be on your computer for 240 days in a year, studying charts and scouring the markets so as to seek out profits. This is the price to pay to get listed as a Leader on social trading platforms, and even then, it is not a guarantee that you will get listed.

Even if you get listed, you find out soon enough that getting listed was the easy part. Staying listed is even harder. Not with new traders with ever more powerful tools that boost performance coming on board to provide very stiff competition for the dollars of copiers and followers.

 

Conclusion

You can see from the scenarios described above that social trading is not easy, whether it is viewed from the standpoint of a provider/leader or copier/follower. It is hard work, but the rewards far outweigh the drawbacks. Besides, if the road to wealth and big bucks was easy, there would be far more rich people than poor people.

Even though social trading is not easy, it is ultimately a rewarding experience for everyone concerned.