What is Social Trading and how it works

Social trading, also called copy trading, is a way of investing that allows retail (non-professional) investors to follow and copy automatically experienced investors and traders.

You don’t need to have a lot of knowledge in the subject. It’s also free of charges/fees, but you must choose carefully who you will be copying and make sure it matches your objetives and goals, your risk appetite and time horizon.

So, in this post, I'll explain what social trading means and how you can get started.

What’s social trading?

We can look for social trading like a social network, like Facebook, LinkedIn, Instagram, Pinterest, Twitter. The difference is that you are really trading in the financial markets and you can also watch the track record of other people. But the interaction is pratically the same as in other social networks, you have your feed where you can see others posts about the markets, questions, polls, etc.

eToro, a social trading platform, allows you to easily find successful investors whose trading strategy pleases your needs. However, this isn’t always simple, because it can take time and some skills to find the right investors to copy.

With social trading, you end up having a further analysis of the what you are investing in. You get access to the investors past returns (even though not indicative of future restults), risk score, the drawdowns, the holding time and even to their current holdings, so everything is transparent to the ones who want to start copying.

With the help and input of others, you can grow your capital safely and learn about it at the same time. Besides, you can diversify your risk by copying several investors with different strategies, which makes you less exposed money investment goes poorly.

In addition to choosing carefully whom you copy, you have to be patient. Like John Bogle said:

“time is your friend; impulse is your enemy”.

This is a process that takes time and you shouldn’t give in to your impulses. Also, and according to Jesse Livermore, you must sit and wait for the right opportunity: “Money is made by sitting, not trading”.

How does it work?

Social trading is, nevertheless, simple. In eToro, you basically just have to search for the ones you consider the best traders who share their strategy and that fits your investment needs. Once you find them, you can copy their activity with just one click.

What may be difficult in the process is the selection you make, because it’s important to check their historical performance.

eToro allow you to access investor's information, like these ones:

• The track record (past returns/losses);
• The strategy and time horizon;
• The inherent risk of the investor;
• How lucrative are their trades;
• The followers and copiers that they have;
• The total assets under management (AUM);
• The assets they are investing in (which can be stocks, index, ETFs, cryptocurrencies, among others).

When you are doing this, it’s important to see what the investor is analyzing and posting in the platform about the markets, as it will also give you a feeling about his methods, experience and thoughts of the market.

Another thing to consider is to set stop-losses for each investor you copy. eToro lets you do this intuitively. You just have to say how much you are willing to lose and it will set a stop-loss as a protection.

When the investor you copy opens a new trade, you will be able to see it in real-time.

However, if you are just starting, try using the demo account and learn how to select the right investor to follow and, consequently, copy. After doing everything mentioned above, sit back and monitor periodically the progress of your account. Don't over watch the account everyday hour, or every day, as this will make your emotionally attached to the markets drawdowns and fluctuations and lead to irrational decisions about the copy. You can choose to add new investors or stop copying certain investors and replace them with others, whenever you want.

Just don’t forget to be patient and give time to investors to do their work and show results.

Investing is a marathon not a sprint.

The advantages of social trading

Social trading can offer numerous benefits to all users, such as:

• Time-saving – it doesn’t require much time, particularly if you copy traders with good strategies;
• Diversification, because you can copy investors with distinct strategies;
• Ease of use;
• Demo accounts;
• Accessibility, as it is available for anyone;
• Information, as it allows you to get a better understanding of the markets and, at the same time, to get a return on your investments, making it possible for you to acquire your own base of followers if that is of interest to you;
• Passive income for copiers that follow prosperous investors;
• Opportunity to do this in real-time;
• Space for interaction and communication with other investors (it’s important to hear their forecasts and opinions);
• Quick access to reliable business information – social trading platforms provide comprehensive information from professional investors worldwide;
• Possibility to earn while learning – social trading platforms allow you to learn from experienced investors, where you can browse the trading market and make money by copying. Therefore, you don’t need to wait until you have all the necessary knowledge to start earning.

The list of benefits of social trading is gigantic, so what are you waiting for?

The importance of social trading for the industry

An increasing number of people is searching for new opportunities of investment in the stock and crypto market. However, a large part of these investors are newcomers. In this sense, being involved in social trading is the perfect way for them to start their investment journey.

When investors share information about investing or about events that are occurring in the markets and industries, the newcomers gain more knowledge into investing. They can also share their thoughts or even ask questions.

Thus, using a safe platform will give investors more confidence, which will help them to boost their reputation in the industry.

How much does social trading cost?

Usually, there are no extra costs for social trading, because social trading platforms already earn from the regular trading and non-trading fees, the same ones you pay when you trade autonomously in the platform.

The investors that are copied receive a compensation from the platform depending on the assets under management and the returns generated month by month.

About eToro

eToro is a trading platform that not only enable investors to invest in stocks, indices, ETF's, cryptos, but also enables users to share and access each other's information and trading activities, just like it happens on social networks.

This platform has features like news feed, copy trading and demo accounts for users. The news feed allows users to monitor and copy successful investors, while the copy trading feature does this in an automatic way. Regarding the demo account, this is free and unlimited.

Getting to see historical performance, risk score, which assets are being invested, assets under management, it’s a big plus for someone that wants to start copy trading.

Get to know more about eToro here: https://lnkd.in/gzqwE2U

My eToro profile as Popular Investor: https://www.etoro.com/people/paulogabrielsa/stats

What you should know so far?

Social trading is a process that allows you to follow successful investors and copy them. Also, it allows you to earn money while you are still learning.

Bear in mind that the copying someone and copying their strategies is a process that takes time.

Still, and knowing that you must learn and keep learning, with social trading you can interact with a whole investing community, which enables you to learn more and share insights.

Finally, try to stay away from sites and signal providers that promise unbelievable results.

Thanks for reading.

Let me know what's your opinion in the comments down below.

Send me PM if you want to connect and discuss furthermore.


All the best,

Paulo Sá