What is Social Trading and Why Should You be Interested?
In the financial markets, knowledge is power. If you could lean on the profitable expertise of proven traders and make similar profits, what’s not to like? With social media now embedded within our everyday lives, it’s little surprise that social trading has helped add a fresh, engaging dimension to financial investing. Social trading is a game-changer for time-poor individuals with spare cash to invest in their futures.
The phenomenon of social trading dates back further than you think. Just after the turn of the millennium, forex traders began to share trading angles across a host of forex pairs, giving rise to the first form of social trading. It’s resulted in a steady rise of adults putting money into the markets. According to Statista, almost three-fifths (58%) of US adults now do so, compared with 52% in 2016.
It’s a phenomenon that’s been roundly embraced by financial brokers. The CFD broker INFINOX has been operating since 2009 and more recently unveiled its own IX Social application, with the ability to copy profitable traders with transparent track records of their trades stored within their IX Social profiles. All the trading tools and executional features are within the same app as the social platform, allowing you to glance at trader profiles and tap to copy their trades in a matter of seconds.
Social trading has mutual benefits for profitable, experienced traders too. You might wonder what’s in it for the traders for them to give up their research and insight into the markets. However, these traders accrue commission through their broker simply by attracting new clients to the broker’s platform.
Are there any pitfalls to social trading you should be aware of?
Social trading acts as a wonderful entry point into financial trading for novices, providing an insight into the mindset of profitable traders. However, the downside to social trading is that you are effectively spoon-fed trades and don’t spend time researching and finding your own potential trading angles. This can be deskilling, leaving you at the mercy of the professional traders you follow.
Of course, being at the mercy of profitable, professional traders is not normally a bad thing. After all, their trades are fully accountable on platforms like IX Social and they too are looking to make money from the markets. However, you can never 100% rely on a professional trader’s past performance as a cast iron guarantee of their future profitability. There is always a risk with anything related to financial investing, whether you’re trading the FTSE 100 or forex pairs. Nevertheless, using the trading perspectives of traders that have been profitable long-term is a sound basis for investing as a beginner.
The best thing to do is to use social trading as part of your trading mix, rather than relying on it solely. You should consider mastering technical analysis to pinpoint areas of support and resistance, while keeping your finger firmly on the pulse of news outlets for stories and press releases to underpin your technical approach with fundamental analysis.
Social trading is a new phenomenon that looks likely to grow in popularity in the coming years. Many financial traders used to complain about feeling alone with their thoughts, but these social platforms have made this profession a much more engaging and immersive prospect in 2022 and beyond.