Social media takes over all of the possible activities of modern human beings: leisure time, fun, education, business, and so on. When we are going to do something, first things first, we are searching for it on Instagram, or Facebook, or whatever. No wonder, this helps us to navigate ourselves through totally new activity or draw precious tricks in the already known one. Similar situation happens in the financial market. But here it is not Instagram, it is a social trade app.
Today there are many of them. Some are better, some are worse. Anyway, each and every one is intended to play one role in a trader’s journey, which is to inspire, motivate, share experience, and be productive in your investing.
This article covers main aspects of social trading:
- What is it?
- How does it work?
- Its advantages and disadvantages.
Keep on reading, if you want to get like a duck to water in the topic.
What is Social Trading?
People frequently misunderstand trading as investment. Yet these are not quite the same. Investments deal with much bigger amounts of money and long-term profits, while trading is a matter of rapid short-term profit and less costly operations.
Social trading includes two main constituents: application and peeping into others’ experience. In the last few years it has become an extremely popular approach to financial markets. It allows mimicking the actions of experienced and knowledgeable colleagues and also communicating with them.
It is suitable for experts as well as beginners. First are supplied with the opportunity to share their successful portfolio and get inspired by interacting with individuals absorbed in similar activity. The second will find it useful for multiple reasons:
- No need for specialized skill. Since you are going to peek at someone else’s investments and duplicate them, you can afford not to dive too deep into the industry. Of course, there should be a comprehension of basics, yet it is enough if it is pretty shallow.
- Saving time and effort. Taking into account, no detailed research of the market as a whole or precise situation is needed, that greatly saves one time and applied energy.
- Learn and gain inspiration. No matter if you have not undergone learning of trading peculiarities, it is still possible to do so in the process. In such a way, a platform performs educating and motivating functions as well.
Social trading vs Copy Trading vs Mirror Trading
Although it is usually stated that social trading is done either through copy trading or mirror trading, it is not quite so. At this point words ‘copy’ and ‘mirror’ are utilized rather to describe the principles of work than the method itself. While in reality, these three are separate branches on a financial market.
Collaboration with peers serves as a key element of social trading platforms. In this case, observation and analysis of someone’s investments happen to be a base for your final decision-making. Besides the portfolio sharing, here trade app is a place to post thoughts, charts, news, and discuss opportunities.
Copy trading means you completely replicate another trader’s activity. You invest in the same project to the same extent. This technique brings high risks of a failure, since the system is automated and you don’t get a chance to make decisions, except for the choice of the trader to copy from.
Mirror trading somehow reminds the previous one, yet bases on algorithmic criteria. It is performed through automated examining of winning strategies a range of traders have already made use of.
Benefits of Social Trading
Collaborating in the best stock trade app leads to a lot of advantageous outcomes:
Autonomy. Despite the fact you are duplicating else’s trade, you still make decisions for yourself (unlike copy/ mirror trading).
Information. They say information is everything these days. And a social trading application is a storehouse of it, where it is trustworthy and accessible.
Knowledge. Not only do you get valuable insights from the platform but also have the opportunity to communicate with experienced traders and learn from them.
Community. It is always nice to acknowledge there are like-minded people. Social trading brokers provide such for better generating of ideas.
Risks of Social Trading
However wonderful anything might be, there are always downsides to it. It is likewise with social trading.
The first of them is that you count too much on other individuals. You become practically dependent. In some way, you are shifting responsibilities. It might seem like a good thing, but there is always another side of the coin.
The very second disadvantage is the risk of coming across an unreliable platform. Unless traders and their portfolios are constantly checked, copying of their trading strategy may cause a harmful effect.
To sum up all aforementioned we can say that social trade is a great way to start your investment journey. Of course, there are risks, but they are inevitable. Try to register to one of the many existing apps and who knows maybe you will succeed both as a beginner and expert trader.