Social trading has become one of the most popular investing mechanisms in the last few years. But, what is more, it has changed the way the market is understood and has made trading a more social activity, sharing knowledge and making the whole trading experience more approachable.
As with all other trading strategies, there are advantages and disadvantages. In any case, we believe that used wisely, social trading can really help investors become experts, and make more consistent profits.
To learn more about how to use social trading, you can visit the site investingoal.com, where there are guides on how to become a social trader, and what brokers will be more adept to work with you if you’re interested in this option.
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Advantages of Social Trading
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There are many benefits to social trading. They have built this investing strategy to be as popular as it is today, and not without reason!
First of all, the main advantage is that beginner traders have access to reliable information. Traders have access to more data now than ever before and can base their decision on the success and failure of other (more expert) traders.
Access to information and knowledge also means being able to read the reviews of other traders on how the market reacts. This is a valuable insight into the market, making it even more interesting for newer traders to go for a strategy that allows them to learn on the way.
Social trading also has the potential to help investors diversify their investments by including in the equation the experience of other traders, making it easier to predict the outcome of a particular deal.
We have already let understood the next advantage a bit in between the lines, but social trading is an incredibly powerful educational tool for beginner traders or those more experienced that want to start investing in a new market or are willing to experiment with new strategies.
The social network and the community of traders can help and offer support to newer investors, and this is something that has had a huge impact in the world of online trading. It has made it more accessible to the common Joe, instead of an activity of some.
Now, a normal person like you and I can access the market and make the deals they want. It has completely changed the dynamic of trading.
Consequently, trading has become an easy activity. Traders can now transform the experience and knowledge of more experienced investors for their own benefit. On the same note, it has made risk more manageable, keeping it under control. There is also another aspect that many traders do not take into consideration. Social trading also offers advantages for those who are experienced. Let’s explain this concept better. Today it is possible to invest in many different financial markets and with very complex tools to manage.
It is very difficult for a trader to know all the markets and all the instruments. For example, you might become an expert in stocks, but not as well versed in currencies or commodities. In this case, you may decide to take advantage of the potential of social trading to invest in the markets or instruments you are less familiar with.
In this way you can diversify your investments without taking energy, time and resources away from the sectors on which you feel more confident and experienced, maximizing your earnings!
Differences between mirror trading, copy trading and social trading
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But be careful not to confuse the various terms! In the world of finance, in fact, terms are very important and it is advisable to avoid generating misunderstandings. Precisely for this reason, before continuing, it is good to try to clarify the subject and clarify some doubts! Mirror Trading, Copy Trading and Social Trading are three different approaches, which aim to simplify the trading activity.
Mirror Trading is a form of Automated Trading. Its purpose is to allow traders to copy the operations of investment companies.
In copy trading, however, the individual trader is copied. That is, the trader shares his operations allowing other traders to replicate them. Finally, social trading is the sharing in a community of one’s own operations as regards financial investments.
Social trading with Etoro
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When it comes to social trading, the undisputed reference point is certainly eToro, the global leader in this sector.
This broker, one of the most important in the world, has always offered this tool to its clients. Etoro’s offer of social trading and copy trading is unparalleled, thus allowing all its users not only to be able to interact with other members of their community, exchanging opinions and information on the object of their trade, as much as also to allow those who want to be able to copy the operations of a more experienced trader.
The social trading offered by Etoro allows you to learn a lot from the most experienced traders but, at the same time, it also allows you to invest without having such an exhaustive knowledge of the reference market.
Drawbacks of Social Trading
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As with everything in life, there are some drawbacks to social trading.
The one that we have seen more often is that social trading plays a role in keeping traders lazy, making a profit only based on others’ strategies, instead of developing their own. It’s a bit of wasted talent.
Social trading is overall an educational tool and it should be used as a step to learning and becoming a more experienced investor. However, it’s hard to understand what traders are doing well or not if those copying the movements are not dedicating their time to study the results and applying their common sense to their transactions.
Another disadvantage is that sometimes I shard to determine which traders are successful and which ones not so much.
While information is available, it may often be confusing as there is not a lot of details on outcomes and results. Social traders should always be careful about what investors they choose to copy, making sure they are experts in their field and have a high rate of success.