A relatively new phenomenon, the story of social trading is one that reflects the changes the internet and our society have undergone over the past few years. Back in the early days of online trading, the lower investment thresholds many online brokers offered made financial trading much more available to the average person, resulting in an online forex trading boom.
However it was still every trader for him or herself, which meant that individual online traders were still at a disadvantage compared to their institutional counterparts, since they were limited by the scope of their knowledge and their ability to seek out and find applicable trading information. Just like the rest of us, they were cold, lonely and afraid.
Social Trading to the Rescue
Then social networks came into the scene and turned things around. We no longer had to seek out relevant information, all we had to do was connect to the right people, and the information simply flowed into our feeds and onto our walls like water from an invisible and endless spring. Some brokers couldn’t help but see that the same principle could easily be applied to their clientele. All they had to do was link up their user base into a network and - presto! – private investors could now enjoy the same open sharing of information that institutional investors have enjoyed since...well, since banking was invented.
Among the first to do so were ZuluTrade and eToro, forward-thinking brokers whose express goal was to democratize financial trading. What started as a way to share basic information such as trade stats or news soon gave rise to a whole new way to invest.
It didn’t take long for social trading brokers to realize that instead of manually applying the information traders received on their social feeds from their social trading guides or gurus, many would be happy to directly copy other traders without having to go through the pesky process of decision making, especially if those traders’ stats showed a high level of performance over a long period of time. This is how copy trading was born.
Although in one sense copy trading is extremely modern, it also harks back to the old fashioned concept of fund managers. After all what other word is there for someone who makes investment decisions on your behalf? There are however a few major differences. The first is that the copied trader has their own money invested in the same position as you, so they have double the incentive to make smart investment decisions. The second is that unlike the fund manager, there is no guarantee the copied investor is a financial professional. Whether that’s a good thing or a bad thing, we’ll leave up to you to decide. Also, unlike fund managers, there’s no risk that they’ll run off with your money!
The Expansion of Social Trading
In the few years social trading has been around, it has spread like wildfire, even the most sophisticated brokers and platforms incorporate social trading in their offering. And even though being spoilt for choice is always a plus, many traders found themselves looking for some kind of social trading guide to help them sort the wheat from the chaff. A social or copy trading guide can not only provide users with an overview of which platform has which features, but also measure the health and robustness of a social trading broker’s network as a whole. Which is why we sent our “field correspondent” Eric to test some of the most popular social trading platforms and their features, and compile the most comprehensive social and copy trading guide to help you get the most out of your social trading experience.