4 Things to Ask Yourself Before You Start Social Trading

So you’ve heard of “social trading” and like to give it a go. Please carefully consider these questions before you start … it will likely save you some headaches and money!

1. Do I Want to Trade Socially, Copy Other Traders or Be Copied?

What type of social trader am I?Social Trading works of the basic principle that the knowledge of many is better than the knowledge of one. Less experienced people will be more interested in absorbing information, while experts will be happy to share more information … as long as everyone benefits.

In practise with Social Trading this means you’re part of 3 main user groups and you have to decide which one you belong to:

A) You want to “Trade Socially” which means you want to trade yourself (and maybe already have been in the past), but you like to actively use information from other people to help you with your trading. For example this may mean looking within your Social Trading Network at the overall sentiment (Buy or Sell) of a currency pair you like to trade. Or it could be looking at the newsfeed of a stock symbol to see what people are saying about the company or how they’re trading the stock.

I.e. it’s basically using real-time views and sentiments to make your trading decisions instead of, or in addition too, fundamental and technical analysis.

B) You actually don’t trade yourself, or you don’t have the time, but you do believe that there’re some good traders out there who make some consistent money in the long run. Rather than trading yourself based on their ideas you just automatically copy the trades of these expert traders in your account.

C) You are a top trader yourself and you want to make some additional money by letting other traders copy you. You therefore share your trading signals on a social or copy trading platform, which in return will pay you a commission based on how successful and popular you are.

Please note though that these groups are not totally mutually exclusive. E.g. you can trade socially yourself and copy a few other traders (to spread your risk) … and once you become very proficient you may start offering your trading signals to others (and get extra money).

But nevertheless before you start you have to decide what your main reason is to start Social Trading since it will have an impact on which social trading network or trade copying platform you should join.

2. Can I Afford This?

Is social trading affordable?Social Trading is not some kind of magic potion which means you’ll be making money without risk or effort. No, trading is inherently risky and even when you copy other traders who have an excellent track record, there’s no guarantee they’ll stay successful.

I’m not a financial advisor, but anyone will tell you that if you plan to trade (socially) or copy other traders, you should never invest money you cannot afford to lose!

On the other hand, unlike many other investment options you can try social trading for free (list of demo account here) or start investing with real money from very small amounts (depending on the broker from $10 upwards).

Quite a few platforms such as ZuluTrade and Ayondo also let you send trading signals from a demo account. This means if you have or can acquire the skills to be a good trader, you can actually make money from other people copying you, without having to invest anything yourself. The only thing you’d need to invest is your time and knowledge.

3. Do I Have The Patience To Be Successful?

Have I got the patience to social trade?Whichever type of social trading user group you belong too, this is not a get rich quick scheme (and too be honest I don’t think those exist, otherwise please get in touch).

If you trade yourself or copy other traders you need to view your results over a reasonable period of time. Everyone will make mistakes and make some losses at some stage. That is the nature of trading. The key is to make sure you understand the key principles of money and risk management to ensure you when you go through a bad run your losses are minimised and limited.

The more time you can spend trading and educating yourself, the more likely you will be successful (whether you trade yourself or just copy others!). We’ve written some useful social trading tips on this website, but there’s a lots of information available elsewhere online too.

eToro is probably the best network for beginners and less experienced social traders. Not just because their easy interface and unlimited demo but also because of the amount of training materials on their website and active trading community.

If you’re not patient and don’t want to put in any effort, then don’t start!

4. Which Social Trading Network or Platform is Right for Me?

What social trading network or platform is best for me?There are many social trading networks and copy trading platforms you can join. However, depending on your profile and preferences some will be more suited than others. Things to consider include:

  • Do you want to be able to try with a demo account first or not?
  • If you invest with real money, what’s your initial investment?
  • Do you want to trade via your tablet or mobile phone as well?
  • Do you want to get paid if other people copy you?
  • What currency do you want to use for your account?
  • What financial instruments to you want to trade?
  • How do you want to manage your risk?

These questions will all have an impact on which network or platform is best suited for you.

To help you though we’ve got two useful features:

And of course feel free to contact us with any questions you have too. We’re always happy to help.

Please note that the information on this website is intended for informational purposes only. This is not investment advise. Trading is risky and you may lose part or all of your investment. If you’re unsure whether social trading or fx trading is for you, please consult an independent financial advisor.

 

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