What Is Forex Social Trading? How to Get Started?

For forex beginners, there’s quite a lot to take to start trading, including trading discipline, technical analysis, fundamental analysis, risk management and so on. That’s why so many new traders are keen to try forex social trading.

Social trading is a relatively new concept in retail forex trading, and its reputation has substantially grown during the last few years. It helps in bridging the gap between the beginners and experienced traders, as well as the amateur and professional traders. In this article, we will examine exactly what social trading is and take a look at some of those advantages and disadvantages.

What Is Forex Social Trading

Social trading is a type of trading that effectively allows traders to copy the market movements of other traders. In this way, social trading can be exactly the same as copy trading.

Social and copy trading have the same basis `but they are different in many ways. You can say that social trading is a broader term and copy trading is a part of social trading. Thinking of social trading as copy trading combined with social media will get you close to an accurate picture of what social trading is.

Social Trading entails to the sharing, in real time, of trading actions, between traders belonging to the same network or community. Trading actions may be transaction moves, but also trading signals, ideas or news pertaining to trading.

Therefore, social trading works along the same lines as other popular social networks, such as Facebook and Twitter, where individuals communicate directly with others on an ongoing basis from wherever they are.

On each platform for every broker, at some point, you will come across traders that want to share their ideas, strategies, and historical performance. All you have to do is click on their activity and replicate them. You just need to find the most suitable trader.

Pros and Cons of Social Trading

Just like any form of trading, there are good and bad points with social trading depending on your needs. Here are a few of the key points to note:

Pros:

1. A great reduction in the learning curve

The most obvious advantage of social trading is that it is easy. By monitoring and following other traders and basing their trades on the professional decisions of more seasoned traders, there is no need for individual Forex traders to do their own technical or fundamental analysis.

2. Learn from experienced traders

You can learn from watching others. Watching traders who trade consistently and intelligently can help you learn how to do the same. Following trades made by losers can also help you out. You can learn what kinds of mistakes to avoid.

3. Elimination of emotional trading

It is difficult to get rid of the emotional influences and personal biases when trading especially for novice investors. Through the copy or automated mirror trading that is offered by social trading platforms however it is possible for novices to take emotion out of their trading equation.

4. Add transparency

By opening up trading to the public, social trading acts to remove Forex trading from being an instrument that is normally restricted to top league brokers and multinational banks. And since all trades placed on a social trading platform are copied directly, no one can intervene in a trader’s trades so there should be more transparency.

Cons:

1. Possibly lead losses

Social trading gives a free exchange of information to individual and small scale investors. Though it is undoubtedly an advantage, it might also become a disadvantage. Since only a small number of traders become consistently successful, using social trading networks may lead to the wrong trader and end up with losses instead of the hope-for profits.

2. Differing trading conditions

New traders may be operating under very different circumstances than the traders whom they copy. When you copy one trading strategy in one market, you have no idea of the elements of that trader. He/she may have a highly diversified portfolio of investments and may be using very high-risk, high-return strategies.

3. Easily to be scammed

Social networks are highly notorious for being vulnerable to phishing attacks and financial scams, which may render more harm to a trader if they are not careful against such entities.

Even though social forex trading is not a scam, several scammers don’t play by the rules, and an unsuspecting trader becomes easily swindled.

4. Useless to improve personal skills

Social trading may tempt traders to be lazy. It is nice to think that all you have to do to be successful is piggyback on a more successful trader, but there are a number of reasons that is a bad idea. First, you have not taken the time to evaluate that trader’s system, and you have no idea why you are doing well, or why they are. Second, you may be caught completely off-guard when that trader suddenly starts losing.

The Best Social Trading Network or Broker

Deciding with which social trading network or broker you will open your trading account is of vital importance towards your overall chances for social trading success. Here then we take a closer look at some of the very best social trading platforms as offered by these brokers.

1. eToro

eToro is a winner for its easy-to-use copy-trading platform where traders can duplicate the trades of investors across over 2300 instruments, including exchange-traded securities, forex, CFDs, and popular cryptocurrencies

2. AvaTrade

AvaTrade is a trusted global brand best known for offering traders an extensive selection of trading platform options.

3. XM

XM is one of the most experienced names in the industry when it comes to social trading and a wealth of other features. They have been around since 2009 and have built a very trusted reputation as a very well-regulated broker offering great trading platforms.

4. Pepperstone

While Pepperstone offers a small set of tradeable products, it provides one of the largest selections of third-party platforms, including multiple social copy trading options.

5. IC Markets

IC Markets caters exceptionally-well to algorithmic traders through its commission-based accounts. Third-party research and trading tool plugins are part of the IC Markets MetaTrader platforms offering.

Conclusion

Social trading is a great way to enhance your trading environment. It can provide you with opinions, ideas and data you never previously considered as well as streamlining the entire trading process for many.

However, it’s important to recognize that the system isn’t perfect and that you won’t be protected from losses. Simply copying successful traders is no guarantee of making money, but it can be a useful tool to leverage when it comes to honing your own skills and learning how to manage risk, develop strategies and make trades independently.