The Ultimate Resource on All Things Social Trading

What is Social Trading

Though some may be unaware what Social Trading is, the majority if not all of us know what social networks are and are probably using one or several of them, for instance, Facebook, Twitter, LinkedIn, Google+, Instagram, Pinterest etc. These networks are largely used for communication and sharing information between different people across the globe.

Popular Social Trading Platforms

1
Min. Deposit
$50
Exclusive promotion
Our score
10
Award-winning Cryptocurrency trading platform
14 Cryptoassets available to invest in
FCA & Cysec regulated
Start Trading
Description:
eToro offers a wide range of cryptos, such as Bitcoin, XRP and others, alongside crypto/fiat and crypto/crypto pairs. eToro users can connect with, learn from, and copy or get copied by other users.
Payment Methods
Wire Transfer, Bank Transfer
Full regulations list:
CySEC, FCA
2
Min. Deposit
$10
Exclusive promotion
Our score
9.3
Wide Range of Trading Instruments
Globally Licensed and Regulated
Find the Suitable Traders to Follow
Start Trading
Description:
FXTM is an award-winning broker for a reason. Wherever your financial interests lie, you can rely on us to provide trading solutions to suit you. This means offering you the widest selection of instruments, platforms, account types and resources to make your trading experience as efficient and convenient as possible.
Payment Methods
PayPal, Neteller, Visa, Mastercard, Skrill, Bank Wire
Full regulations list:
FCA, CySEC, FSC
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
3
Min. Deposit
$200
Exclusive promotion
Our score
8.7
Copy and Social Trading Platform open to 50 Top notch Brokers
Regulated in EU and Japan
Advanced Trading Strategies to Copy
Start Trading
Description:
Payment Methods
Visa, Mastercard, QIWI, Skrill, China UnionPay, Bitcoin, Neteller
Full regulations list:

How Does Social Trading Work?

Social Trading is the real-time sharing of trading actions be it signals, trade ideas or news between traders over a network allowing traders and investors alike to follow each others’ actions.
Without Social Trading, traders are required to learn trading strategies involving aspects such as Technical or Fundamental Analysis. For instance, one can use Fundamental Analysis to pick a stock to invest in by looking at the company’s information such as financial performance, leadership, dividends history etc. For Forex Trading; economic indicators such as Gross Domestic Product (GDP), employment rates etc. as well as the charts are analyzed so as to make informed trades.
However, newbies and experienced traders alike can take the back seat and let the experienced traders do the analysis and get this information via Social Trading Networks.

 

Social Trading vs Copy Trading vs Mirror Trading

Most people use Social trading, copy trading and mirror trading interchangeably to mean the same thing. Copy Trading and mirror trading can be considered as narrower forms of Social Trading.

In copy trading, your portfolio is connected to the portfolio of the trader(s) you are following in the social trading network of choice. While using Copy Trading, trades made by the trader(s) you are following are automatically copied to your portfolio. Hence, apart from utilizing Social Trading Networks to gather information, digest it and make the investment or trade decisions yourself; you can utilize the Copy Trading functions offered by the majority of the Social Trading Networks to copy trades automatically.

Mirror trading on the other hand is very similar to copy trading but associated with automated trading strategies or programs. Investors utilizing mirror trading are connected to copy trades from automated trading programs based on different strategies that are offered by mirror trading companies.

Does Social Trading Work

Most people looking to get into Social Trading are always sceptical on whether they can profit from Social Trading Networks such as Zulutrade and eToro. Though trading, in general, contains inherent risks, most Social Trading Networks have advanced features that make it possible to pick profitable and consistent traders to follow. Due to this, Social Trading does work and one can make a decent return. However, just like trading for oneself, it is advisable to start with a social trading demo account and hone the skills of picking profitable traders to follow.

Key Words in Social Trading

  • Follower/Investor/Copier: these are terms used in Social Trading to identify the people following other traders or investors to utilize their information or directly copy trades from them.
  • Leader/Trader/Provider: these terms are used in Social Trading to identify the providers of the trading advice or trade signals to be followed by the followers or copiers.

The Benefits of Social Trading

Here is why you should be using social trading networks:

  1. Accessibility: Major advancements have been made in the field of social trading and numerous social trading networks now freely available for all traders and newbies to choose from.
  2. Reduces your trading learning curve: Social Trading allows you to follow the activities of well-experienced traders, and hence you learn more from watching. What’s more, its the best way to earn as you learn by replicating the success of profitable traders.
  3. Social trading demo accounts: Most Social Trading Networks will allow you to have a social trading demo account allowing you to simulate the real world of Social trading completely risk-free.
  4. Eliminates emotional trading: Social Trading Networks allow you the access to numerous trade ideas from experienced traders all over the globe, this increases your trading confidence and aids in making decisions as you are able to gauge aspects such a sentiment from the crowd.
  5. Diversified portfolio: Through Social Trading; you will have access to multiple trade ideas and signals allowing you to allocate your portfolio to several providers hence spreading the risks associated with individual decisions. Social Trading Networks also cater to multiple markets from Forex, Equities and futures; access to different assets will also help you as a follower diversify your portfolio.
  6. Ease of use: Majority of the Social Trading Networks have intuitive interfaces that are easy to use and newbie-friendly making the process of copying your favorite and profitable traders easy and less time consuming.
  7. Extra revenue for traders: If you are an experienced and profitable trader, you can also earn extra revenue by connecting to Social Trading Networks and providing your trades to followers for copying.

How to get started with social trading

Before you can start social trading, you first need to do the following:

  1. Open an account with one of the Social Trading Networks. There are numerous to choose from, hence you should analyze the reliability and accessibility as well as other features available and choose one that best suits you.
  2. Find profitable and consistent traders to follow. Most Social Trading Networks will provide tools to help you filter the available traders according to profitability and other traits such as win rate, drawdown, number of pips gained and return on investment. Some of the advanced platforms will also allow you to simulate the amount of profit you would have received by following your chosen traders over your preferred period of time.
  3. Choose how much to allocate per chosen trader and copy them.
  4. Sit back and periodically monitor the progress of your account. You can choose to add new traders or stop copying particular traders and replace them.

Potential returns when following top traders

To approximate how much you can make as a follower via Social Trading, we will use the performance of the top 3 traders in the Zulutrade Social Trading Network. Zulutrade is one of the platforms with a feature that allows you to simulate how much you would have made copying various traders over a chosen period of time.

In our simulation, we will use a relatively small capital of USD 1000, and make a simulation for 3 months.

The traders we select must be trading using real funds only and not demo accounts, this is important as we can assume traders will be more careful with real funds than virtual funds as they stand to lose.

The 3 months test dates are September 27, 2017 to December 15, 2017. The top three traders copied for this period by name on the Zulutrade Social Trading Network are Bandarede, Rubenwaves, and Alexkl Fast News.

Copying the three traders would have generated a profit of USD 498 which is a 49.8% Return on Investment, in 221 trades.

One of the benefits of using Social Trading Networks is diversification of risk by copying trades from different traders using different strategies and hence offsetting losses if one trader performs poorly. For instance; the second trader in our simulation; Rubenwaves, lost -1.8%, however, the portfolio still makes a positive return since the profits of the other two traders offset this loss (Bandarede 25.4% and Rubenwaves 26.2%).

A similar simulation based on the same 3 traders on the Zulutrade Social Trading Network for a whole year would have resulted to a whopping 157.3% return on investment (which is USD 15,730 in profits assuming the same starting capital of USD 1000) in 923 trades. This outperforms most traditional investments by a huge margin making Social Trading a great avenue to invest in.

However, note just picking the top traders in the Social Trading Network is not always recommended and you should take time to analyze the best traders to copy. You should be guided by factors such as how much capital you want to start with, the percentage of risk you are willing to take and amount of return you expect. If you are an aggressive investor, you may opt to create a portfolio of traders with high rates of return but understand that such returns may be associated with higher risks and bigger drawdown levels. Conservative investors on the other hand can create a portfolio of traders with lower returns but very low drawdown levels.

1
Min. Deposit
$50
Exclusive promotion
Our score
10
Award-winning Cryptocurrency trading platform
14 Cryptoassets available to invest in
FCA & Cysec regulated
Start Trading
Description:
eToro offers a wide range of cryptos, such as Bitcoin, XRP and others, alongside crypto/fiat and crypto/crypto pairs. eToro users can connect with, learn from, and copy or get copied by other users.
Payment Methods
Wire Transfer, Bank Transfer
Full regulations list:
CySEC, FCA
2
Min. Deposit
$10
Exclusive promotion
Our score
9.3
Wide Range of Trading Instruments
Globally Licensed and Regulated
Find the Suitable Traders to Follow
Start Trading
Description:
FXTM is an award-winning broker for a reason. Wherever your financial interests lie, you can rely on us to provide trading solutions to suit you. This means offering you the widest selection of instruments, platforms, account types and resources to make your trading experience as efficient and convenient as possible.
Payment Methods
PayPal, Neteller, Visa, Mastercard, Skrill, Bank Wire
Full regulations list:
FCA, CySEC, FSC
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
3
Min. Deposit
$200
Exclusive promotion
Our score
8.7
Copy and Social Trading Platform open to 50 Top notch Brokers
Regulated in EU and Japan
Advanced Trading Strategies to Copy
Start Trading
Description:
Payment Methods
Visa, Mastercard, QIWI, Skrill, China UnionPay, Bitcoin, Neteller
Full regulations list:

Learn with social trading

Leaders/Copiers offering their strategies/signals in the Social Trading Networks also earn depending on the number of people copying them as well as trades executed. Fortunately for followers/copiers also; most Social Trading Networks have rankings for the followers allowing investors to copy successful followers. This means that expert traders are more likely to share their trades as it benefits both sides.

Social Trading in the USA

Social traders from the USA should adapt to particular strategies so as to make it possible to copy trades successfully while still adhering to the requirements and restrictions imposed on trading in general in the country.

The first restriction traders from the USA face is on hedging. Traders are not allowed to hedge their trades, which means they cannot take to opposite trades on the same instrument for instance taking both a buy and sell on EURUSD pair.

The second restriction is in regard to the FIFO rule (first in first out) which implies that trades on one asset should be closed in the order of which they were taken.

This makes it very hard for traders from the USA to copy different traders as these traders may take opposing positions on one asset and opt to close out a position before another trader who made their position first.

Though some social trading networks are creating mechanisms to counter these problems, the most straight forward way to handle it is select traders who specialize in different assets or instruments. In this case; the traders will not be taking positions in the same asset on your portfolio which could bring problems to do with the hedging and FIFO rules.

Social Trading in the UK

Though social trading networks in the UK may be required by the UK FCA (Financial Conduct Authority) to obtain licenses for portfolio management; social traders, followers and leaders are not required to obtain these licenses. This makes social trading accessible and legal for UK residents for both the followers and providers.