The Basics of Social Trading
It is difficult to deny that the internet and social media have combined to change many aspects of day to day life. What many people do not realize, however, is that this is just as true in the world of trading as it is anywhere else. Social trading has become one of the most popular trading methods among beginning traders, as it allows them to see and copy the actions of their more experienced counterparts. Let’s take a look at just what social trading is, how it works and how new traders can use it to profit and develop themselves into seasoned investors.
What is Social Trading?
Social trading, stated simply, is the use of large groups of people to understand markets and make decisions about them. Social trading brokers enable traders to see pertinent data about what other traders, both as individuals and as a group, are doing. This gives traders valuable insight into market perceptions. In addition, data about individual traders are generally displayed. This data can help those who use social trading platforms to identify the most successful traders to emulate and copy.
Many social trading platforms also offer an automatic copying option. This is a method that can be implemented once an experienced trader has been identified as having a good track record of profitable trading. Users can set their accounts to automatically copy the actions of their favorite traders. This essentially relieves newer traders of the burden of making trading decisions, instead allowing other, more experienced traders to make the choices of what assets should be bought or sold. When used in this manner, social trading can be turned into what is essentially a stream of passive income, provided that the trader being copied continues to trade successfully.
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Even at a cursory glance, it is obvious that social trading has some large advantages to new traders. The ability to use the knowledge and experience of others to trade profitably and make a return is an obvious edge over the traditional method of learning through trial, error and extensive market research. The ability to use this expertise also leads to less anxiety when it comes to executing trades. New traders are often prone to panic when a market temporarily fluctuates against their position, leading to many trades being cancelled too soon. With one or more experienced traders guiding your trading decisions, it is easier to confidently hold a position through temporary reversals and fluctuations. This also makes trading, on the whole, more enjoyable, as the decision making process is less stressful in the beginning than more traditional trading methods. An enjoyment of trading is one of the largest keys to becoming better at it.
How to Best Use Social Trading
As was mentioned earlier, it is possible to simply set a social trading account to copy the movements of reliable traders and turn it into a form of passive income. However, there are much, much better ways to make use of this powerful tool. The most obvious of these is as an educational opportunity. There is almost no other venue in which new traders can see their already successful counterparts executing trades in real time at no cost. A careful study of the methods used by seasoned traders can greatly cut the learning curve for those new to trading. In Forex markets, in particular, social trading is a useful learning tool because it can help new traders to understand the long term trends that experienced traders analyze and make use of in their trading decisions.
With this said, the goal of a new trader who is using a social trading platform should always be to become one of the traders that others are copying because of consistent success. There are two major reasons for this. The first, and more important, is that developing one’s trading skills to this point will result in the ability to transfer them to any other trading platform successfully and trade for profit in the long term. The other is that almost all social trading platforms reward traders that others are copying with a small share of the profits that are made by those who are copying them. This means that trades can become more profitable without a higher capital investment.
Clearly, social trading is one of the most exciting innovations in the worlds of Forex, CFD and binary options trading at the moment. It not only provides an excellent educational resource for new traders, but also enables them to profit much more easily as they learn to trade successfully. Of course, work and research are still components of success in the world of social trading. A trader who does not learn from what others are doing to profit but instead only copies them will only go so far. However, for those who truly want to develop themselves into seasoned, professional traders, social trading is one of the best and easiest ways to do so.