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Social Trading Explained

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Table Of Contents

This post is also available in: Indonesia

It’s not uncommon to see new traders get into the Forex market and blow through all their funds in a very short time. It happens too many times that people start to think the Forex market may be a scam. That knowledge gap, which makes new traders fail because they are unfamiliar with the market, is where social trading comes in.

With it, newbies can follow top traders who are good at trading and have higher success rates. By following the trades made by pros, newbies get actionable information about the markets in real-time. Essentially, social trading is about copying the trades of more experienced traders.

The ecosystem is composed of a network that connects a community of traders, the experienced and the new traders. So, if you are thinking about opening an account, you might find it harder to trade than they make it look in adverts. You should not be alarmed either, because social trading exists for the purpose of making it easy for you to trade.

However, do not just wake up one day, look at all the disposable income you have and then open an account. There is a process you have to follow to increase your chances of succeeding from following these Forex trade plans. Let’s get into that briefly, before we look into the specifics of social trading platforms, trading forums, and other communities on the Internet that make it easy for you to trade.

Forex Education for Traders Planning to Use a Social Trading Platform

If anyone tells you to trade without an education in Forex, you should probably not listen to them. The best thing any new trader can do to get into the market, is give themselves the edge that starts with education. The most successful Forex traders know their material.

Education will allow you to do things like:

  • In-depth fundamental analysis
  • Technical analysis
  • Reading charts
  • Setting stop losses
  • Understanding signals
  • Following trends
  • Trading with the news

The list of perks that you get from Forex education is long. The best Forex trader is the one who learns first and then starts trading.

Where Does Forex Social Trading Come in?

When you have studied the markets, trading is the next logical step. At this point, you know the markets only in theory. To give yourself an even better edge, you should consider using demo accounts first and learn how the markets are in real life, without losing any money. However, even after all that, you could still easily lose money and end up as part of the failed traders league.

To avoid that, you need trading wheels. That is why we recommend you find the best Forex traders to follow. They will show you their trades, how they arrived at the decision and if you have the education needed, you will be able to easily learn from them and improve your own analysis.

Social trading is not meant for you to coast through the Forex markets, replying on others. Here’s why. The pro traders are not infallible. They too can get it wrong and if you stake everything you have on their recommendations, you could lose.

The best thing to do is learn about how the markets work, use social trading to get the information needed from experienced traders, and then compare with your own analysis, as a way to confirm that you are on the right track.

Are Forex Social Trading and Copy Trading the Same?

Is there a difference between social trading and copy trading? Technically, yes. However, they operate on the same principle of experienced traders sharing their knowledge with newbies, on a Forex trading forum.

To make this easy to understand, social trading is the blanket term, which encompasses copy trading. However, in copy trading, your account is bound to that of another trader. Their choices and trades are reflected in your account. Their profits are your profits and their losses are your losses too.

One thing you should understand is that the basic concept is the same. The difference is, there are several subtypes with restrictions or requirements that change, depending on who is offering the service.

What Are the Experienced Traders Getting out of This?

In social trading, status and money are what drives experienced traders to share their trading strategies with new traders. There is usually a leaderboard when on a social trading network. They post the trader’s popularity and success rate.

There are social trading platforms, built and tailored specifically for traders who want to seriously invest money. They include MyFXbook, Zulutrade, and Ayondo. Experienced traders with good stats are signed up on such platforms and paid a commission for providing that information to you

Before You Start Social Trading…

Social trading isn’t for all people. There is truth in the fact that it has made it easier for people who did not specifically train for the Forex markets, to make it. However, it has received some criticisms, for making it look like you do not need a lot of knowledge to properly navigate the markets.

This article could just be a list of all the things you need to study to be good at trading and we’d need more pages to list them all.

One of the downsides of social trading, in relation with the trader, is that some people think it eliminates risk 100%. That is not true, as we have mentioned above. The thing about social trading is that it can make you skip lessons and get to trading much faster. But that is at the expense of experience and real knowledge.

That’s not all. When a trader is making up strategies, they are all about their goals, motivations and so on. It is not about you. What do you want to do?

The reason why Forex education teaches strategy, is because they need people to craft their own style and strategies. That is how you augment what you know with the knowledge provided by the Forex trading forums. 

How to Choose a Copy Trading Platform

Choosing a Forex broker is hard enough as it is. Selecting a social trading platform you can work well with is a little harder. In addition to inspecting details about regulation, spreads, leverage, and tradable instruments, you need to find a platform with a varied number of traders to follow.

In addition to that, it has to be a place where you feel comfortable and safe. Some of the main features you have to pay attention to are:

1. Minimum Deposit

Many of the social trading platforms have a low minimum deposit (usually $100). It is important to look at the details of each, to ensure that whatever capital is needed, you are prepared. It is also important to use little amounts of money to test out the best traders on each platform and see if they work for you.

2. Regulation

Social trading platforms open up all the time. To be safe, go for the ones that are regulated. Many of the ones offering the service are not regulated. If you are paying for something and putting your money on the line, it is important that you check the details to make sure that you will not be swindled. There has to be regulation, or anything could happen and leave you with no recourse.

3. Currency Pairs

The social traders do not offer access to the same number or types of currency pairs. You need to check what they offer information for and how valuable it is. Could be paying money for information on currency pairs that do not offer great returns.

Also need to look at the way that the traders are employing strategies. Do not feel compelled to follow a trade that does not use the method you prefer. It will make you have to learn a whole new strategy that might not work for you in the long run.

4. Cost, spreads, and trading fees

Usually, there is no cost directly associated with social trading. However, the platforms may have hidden fees. Always check to make sure that if there is a fee somewhere, you know what it’s for and that it is transparent. If you do not check this, the income you get may be impacted.

How do You Pick a Trader to Follow?

There are many strategies you can use when trading. The traders you follow, use varied styles and methods. The best thing to do here is look for a trader with a combination of both great stats and a high number of followers.

To determine which statistics are best, look at the history of a trader and how much they have earned trading. This will give you a good idea of the success rate that they have. But, that is not all. You need to consider the trading strategy. We told you before that the whole point of social trading is that you can learn and rely on yourself at some point.

That means, you have to learn about the markets first, come up with a strategy that works for you and then look for a trader with a similar style, great earnings records, and a high success rate. That way, you can learn where the mistakes in your strategy are and tweak this as you go.

Eventually, you will graduate from relying on this trader for ideas, to coming up with your own and using the trader’s ideas for confirmation and finally becoming a trader in your own right. Sometimes, you can check out traders who trade a few times a week. Usually, these are well-thought out trades with higher chances of success. 

If you are on a copy trading platform, consider how responsive the expert trader you are following is. Ask yourself questions like:

  • Is the trader confident in their abilities?
  • Are they able to answer questions in a professional way?
  • Do they communicate in a timely way?

Trust is critical here and if there is none or you feel like the trader is off, opt for someone else. The same is true for Forex trading on Youtube, where you follow YouTube channels started by traders.

Social Trading

The Best Social Trading Platforms

We think it would be great if you had somewhere to start. Here are some of the top FX market leaders in the social trading platform market.

1. eToro

With over 5 million professional traders to copy, eToro provides a wide platform with great opportunities. There is even a demo account with $100,000 in virtual currency to test out your favorite traders.

2. ZuluTrade

On this platform, you will have traders from over 192 countries with AI-based account protection to ensure you do not lose more than you invest. They display traders clearly by showing names, amount following, profits, weeks trading, average pips, and other specific details.

3. Darwinex

This platform provides access to over 300 tradable instruments across a wide range of pro traders. They are properly authorized in the UK by the FCA. Their operation is trustworthy and reputable. All you have to do is be smart about who you follow.

Other options include:

With all these choices, you have to find the best Forex trader to follow and be careful about how you manage risk. Find out more by reading as many social trader reviews as you can to get a clearer picture about each. 

Lastly, do not Be a Follower

Yes, we know that this article has been all about following the Forex leaders. But what we mean is, do not become one of those traders who assume that their copy trading will go swimmingly all the time. The reason why we are stressing this point is because it is easy to get unrealistic.

That is where the mistakes begin. Suddenly, you are placing all your money on the line, based on someone else’s Forex trading ideas. Outline the following things:

They should be the guiding light that impacts the decisions you make.

Be wary of trading with shady characters on the Internet. Check credible pros of Forex trading on YouTube. Only go to a platform that is well-known, properly regulated and with a good reputation. Walk into this, knowing the risks fully. To get great ideas on what you can do in the market, check out this Forex careers list. Always check to make sure that you live in a country that allows Forex social trading.

This post is also available in: Indonesia

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Updated  October, 2020

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