Social Trading Networks
From social trading communities to autotrading platforms
While social trading is defined as making investment decisions based on social indicators (i.e. information from other traders), the networks are the enablers that make this information available online.
The first social trading networks focussed solely on the online information and idea sharing between traders. The concept was very similar to that of other online social networks like Facebook or mySpace. I.e. you create a profile highlighting your preferred trading strategies and markets you trade (e.g. Forex currency pairs, stocks or commodities). You then look for like-minded traders from around the world who you’d like to follow. Traders on the networks can share their views of the markets with others in similar to updating your Facebook status. The power of these networks though involved the integration of the real-time trading feeds from the traders connected to the network. I.e. whenever a trader makes a trade in their own account, this information is automatically shared with the network. Therefore, at any time you can see the overall buy or sell trend from all the traders connected to the social trading network or your own community.
The first social trading networks were released as an additional feature by existing brokers. Because they already have access to the real-time trades on their platform, it made it easier to share this information with their customer community. eToro and Zecco.com are two such pioneering brokers. The first company to be founded solely as a social trading network was Currensee. They didn’t offer any brokerage services themselves and the traders had to connect to their social network using accounts they hold with associated brokers (Currensee was eventually bought by a broker, OANDA, in September 2013, but closed on October 31st 2014) . ZuluTrade, Ayondo, FXStat, Tradency, Tradeo and Myfxbook also followed. ZuluTrade was launched by the parent company of AAAfx broker, though integrates with other brokers as well. FXStat and Myfxbook were launched as a pure forex social networking platforms. It’s worth mentioning a company called GangTrading here as well. They launched a Facebook social trading application in July 2010, allowing you to share real-time trades with your friends, though they have since disappeared from the market. FXBees, which launched itself as the “first social Forex broker” in 2010, also no longer exists.
Because the networks have access to the real-time trades and performance of the traders connected to the network, it becomes transparent who’s performing well or not. The next logical step for these social trading companies was to allow investors to automatically follow the trades from traders they believe to be profitable. eToro, ZuluTrade, Ayondo, Myfxbook and FXStat all offer this functionality.
While the social trading networks initially focused solely on Forex currency trading, some of them already added commodity and indices trading to their portfolios. Since 2013 individual company share quotes can now be traded on two of the networks as well. From the second half of 2013 we also started seeing a number brokers adding their own social trading capabilities to their offering (e.g. BelforFx Social, FxPro SuperTrader, Gallant Trade Copier, InstaForex ForexCopy and Alpari UK with TraderConnect), or purchasing social trading networks (e.g. OANDA’s purchase of Currensee). Or, as in the case of IronFX, partnering with a new social trading platform like Sirix as well as myfxbook. Sunbird started with their own GurusTrade platform in 2013 but moved to Sirix as well in 2015. CM Trading also chose Sirix.
One of the more interesting entrants was Darwinex (launched September 2014 and now open to all customers), which takes the concept of following and copying other traders, but from a more “investment manager” approach.
Peeptrade, which launched in 2015, takes another different approach. They allow you to subscribe to the portfolios of professional equities and derivatives traders you want to look at (i.e. ‘peep’).
Launched in 2016, SwipStox also offers a unique new approach taken from social dating apps. You swipe left or right to copy a trade or not, though there’s a clever algorithm in the background showing only trades which match your profile.
With the growing popularity of binary options trading (simpler to understand and easier to control for novice investors) it’s also no surprise that we’ve seen the first social binary options trading platforms emerge in 2015. First to launch was copyop (which is part of anyoption) while ZuluTrade also added binary options to their existing social forex trading network. PorterFinance also got in on the act by adding trade copying to their binary options platform Q1 2016.
2016 also saw the introduction of the first “social trading fund”. The Darwinia Index was launched by Darwinex in March and selects the traders and strategies it copies on behalf of its investors (similar to a fund picking stocks). We mentioned before that it wouldn’t be long before this type of investment fund would be launched by one of these companies, and as first round investors ourselves it’s so far been profitable.
Hot on the heels eToro also launched their “CopyFunds” in November 2016. Their “Market CopyFunds bundle together ideas or strategies, while their “Top Trader CopyFunds” also group together the best performing traders on their network.
So, what’s next for the social trading networks? This is certainly still a young and growing market with lots of potential. New features are being launched at a regular basis. No doubt new entrants will come and join the market and the big established investment companies will need to evaluate how they will fit into the social trading landscape once more investors start joining these networks.
We cannot predict the future, but for sure, we’ll keep you up-to-date in our social trading news blog. You can find a full list of current social trading platforms and networks here.
You can also compare the features of the main social trading networks here and read detailed reviews of the leading ones too (see the menu on the right).
Last updated: April 24, 2017