Social trading refers to a process of strategic trading that allows investors to mimic the trading strategies of veteran traders. It is a joint effort in trading and also learning as well as executing trades.
Though it is also criticized, people do agree that social trading makes the world of investing accessible to a larger audience. With the knowledge they share, traders who do not have enough experience can trade in global markets that they may have been apprehensive about. Copy trading and mirror trading are two important forms of social trading. Check out more at Multibankfx.com.
How does social trading work?
You can approach social trading in a number of ways. Some traders could opt for a completely integrated social trading platform. On these platforms, traders can share strategies using copy or mirror features. Another option is to subscribe to a professional trader’s platform where you are able to see their activities via a live feed.
Some traders choose to adopt the strategy in parts and stay in control of their trades with the help of signals and indicators. By assessing the market sentiment and how other traders are behaving, social trading could be helpful in validating other forms of analysis.
But why would professionals be interested in giving out their trade secrets? There are many incentives for them to do so but money, status, or a mix of both are the leading reasons.
How to choose a social trading broker?
Most social trading brokers tend to come up with their own set of selling points and disadvantages. It can be quite a task to assess which platform suits you. Here are some points for you to consider.
The costs that come with social trading might not be as straightforward as one would think, so here’s a look at what the breakdown looks like:
Spreads & Fees
No matter what you trade from forex, stocks, or ETFs, these hidden costs could nullify your profits. Some brokers would require you to pay them a commission per trade while for others, the fees may keep changing with every lot.
Brokers who emphasize on amateur market players often do not have unreal demands regarding account minimums.
Brokerages and companies that deal with financial technology who are aiming to target experienced professionals might demand a much higher deposit.
Remember that typically, premium accounts would have more competitive spreads and offer far greater leverage than basic accounts.
Deposits & Withdrawals
How you add or withdraw money from your accounts is yet another important factor. For some brokers, the old-fashioned way of using a bank wire remains the most secure way of fund transfers.
Keep your goals in mind when you select a trading platform. Will charting functions be helpful for you? Would you like automated trading? The platform you pick must cater to your requirements.
Ease Of Use
Interface usability is very important for beginners. The platform needs to be easy to use and navigate through. It should not be a tedious task to keep looking for the tools when you require them. The display must be clutter-free.
Another option is an advanced configurable interface that has several trading windows, so that it can be adapted as per your requirement.
Social trading demands easy access to your feed as well. Make sure that trade information is displayed properly and feeds are updated timely without any further action.
In case social trading automates parts of the trading, then you may not need to pay a lot of attention to the platform.
How quick are your trades? Is the execution speed at par with the MT4 or MT5?
Are the trades executed accurately? Pay close attention to these factors since even the seemingly perfect-looking interface may not be of any use if they fail these parameters.
Explore the different tools and widgets on the platform and see what purpose they serve for you. Social trading brokers can offer multiple features as news feeds, advanced analytics etc–assess what you will actually use and what all can be availed in the price you pay.
Ensure that your broker has a security policy in place and that they can be transparent with you about how they protect your data and what risk management features do they have in place.
Two-factor authentication or deposit protection guarantees can be taken as some great signs. Please ensure that you work only with a licensed broker–unregulated firms can invite unnecessary risks.
This one does not seem like a point of concern until you realize that they don’t trade in the hours you want to operate in. It is certainly very important when you’re eyeing international markets.
An asset list would be able to provide you with the number of markets that you can trade-in. Certain social trading brokers and platforms could be experts in particular markets like forex, CFD, or cryptocurrencies, whereas others may give you a lot of choices but lack the expertise. It is up to you and your financial needs whether to opt for specialization or have multiple options open.
What do other traders have to say about the social trading broker? Customer feedback is a great parameter to assess your broker’s integrity, you can learn from people’s mistakes and wins. That said, always take the reviews and feedback with a pinch of salt. Some people are just bolder behind the screen and are only trying to shift the blame.
Social trading becomes more and more enjoyable as you learn and begin to grow as a trader. A broker who helps you in this journey should be cherished. You would come across some social trading brokers who would share online tips, classes or video tutorials on a wide variety of subjects right from risk management to diversification. Learn to make the most of these resources.
Stay away from brokers who are not active on social media, and have just a set number of reviews–you would not want to trust them with your money. Go the extra mile and check their official credentials too–it is best to work only with a properly licensed and regulated broker.