In this guide to social trading you will find all the information you need to learn more about this investment strategy. We have also included a list of the best online brokers for social trading, which has been compiled by our team of trading experts.
Imagine a social network of investors. In other words, a platform where the best traders are on and you can follow them. Now go a little further and imagine that you can invest and copy the trades that these investors make. That’s social trading. Sounds like a foolproof method, doesn’t it?
It is true that you can be successful in investing with this innovative approach, but don’t forget that trading always involves risk. You can make money, but you can also lose money. Despite what the advertisements promise you, the truth is that this type of trading, also known as mirror trading or copy trading, is far from infallible. Let’s see how social trading works and draw your own conclusions.
Firstly, you need to open an account on a platform that allows copy trading and deposit the minimum amount of money required. This involves choosing an online broker, and as always, we recommend that you go for one that is safe, regulated and trustworthy. It’s easy: follow the checklist below or, better still, choose one of the social trading brokers we suggest. All the brokers listed on OkBrokers have passed the filter of our experts. They are licensed by major international organisations.
The next step is to search through the available traders and mark the trader you want to replicate the trades of. You can get as complicated as you like, but the easiest way is to look at the trader rankings to see which traders are making the most profit. You have the option to choose several and you can track them automatically, or you can manually copy the moves that interest you the most.
Can I pick a trader and copy their trades automatically? It’s as simple as that? It sounds too nice to be true, and the truth is… nice is sometimes not so nice when you dig into the details. But the question you’re probably asking yourself at this point is…
Why do some traders allow themselves to be copied?
The answer is direct, clear and simple: because online brokers pay money to the most copied traders. It is a relationship in which the trader wins because they give them money and the online broker wins because they have the best traders and this will bring them more clients. It is a relationship based on mutual benefit.
In theory, social trading is based on the fact that by offering commissions to the most followed traders, they will prefer to trade on such platforms as they offer them extra profits. On the face of it, this seems to work in theory, but our experience is that it is not always possible to copy trades efficiently.
Well, sometimes yes, but not always. We want to make one thing clear: social trading is not infallible. It is simply another trading technique that has its pros and cons. If you think you can open an account on one of these social trading platforms and simply automate trades of winning traders to collect profits at the end of the month, you will most likely not get the expected results.
There are many things that may not work out as well as we hope. For example, whether a trader is «successful» is measured over the long term. Anyone can carry out trades that do not perform as expected, even the most experienced traders.
Secondly, when it comes to very short duration trades, the fact that there is a difference in execution time between the trade we are following (by the trader we are following) and our own can result in diametrically opposed results if the markets experience a large fluctuation. This is especially true for markets such as Forex.
So shouldn’t you try this trading technique? Yes you can and with good results. We just want to help you keep realistic expectations about what it is and what you can achieve through social trading.
As far as trading operations are concerned, they are the same. Perhaps an almost imperceptible differentiation can be made. Social trading platforms are based on traders sharing their trades as if it were a social network. Copytrading platforms are in principle about making it easier for investors to get in touch with traders.
In reality, the line that separates (or used to separate) social trading from copytrading has gradually become blurred and today the two terms are used interchangeably to refer to platforms that allow you to copy the trades of other traders.
As we have already mentioned, copytrading or social trading can be done in a number of ways. One can follow a number of traders and manually copy all or some of their trades. There is also the option of copying all the trades of that or those traders automatically.
That said, there are more forms of automated trading worth mentioning that do not fit into the copytrading box. One of them is performed by Forex robots. Basically, it consists of performing trades in the foreign exchange market automatically, which are based on calculations and predictions made by specialised software.
- It allows people who do not have extensive knowledge or experience in the investment industry to operate.
- You get financial advice, which obviously does not have a vested interest like a traditional investment institution does.
- It is, of course, a perfect way to keep abreast of market movements and the economic calendar.
- You can diversify investments by replicating the best traders in each market.
- It can serve as a learning base. By copying expert traders, we can identify strategies that we can adapt to our social investments.
- The copying of the movements made by the trader you are following does not occur immediately, therefore, there is a time difference that, for example, in the Forex market, can lead directly to the failure of the operation.
- Many social trading platforms require you to trade with the platform’s own broker. In fact, it is common for the platform’s source of income to be the commissions charged by that online broker, so these are often very high.
- In short, trading on social trading platforms is expensive and sometimes inefficient.
This is a form of trading, also known as copy trading, in which traders can copy the trades of experienced traders, who receive a commission for being «followed». Although it is not a foolproof strategy for making money, it can be useful for retail investors who are not very experienced or who wish to trade in markets and assets with which they are not particularly familiar.
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Best copytrading brokers
If you would like to try one of the recommended brokers listed in the table at the top of this page. These social trading brokers have been carefully vetted by our team of experts and are long-established platforms that are regulated by international bodies such as the Financial Conduct Authority, ensuring that their operations are carried out safely and securely.
We would like to end with a risk warning: remember that trading carries a risk of capital loss and that most retail investors lose money. This is largely due to a lack of knowledge and experience required to study the financial markets or to perform technical and fundamental analysis of the chosen investment instruments.
- Scalping Trading
- Hedging Trading
- Negative Balance Protection
- Demo trading accounts
- Fixed spreads
- Variable spreads
- Financial Conduct Authority – FCA