Trading has always been a solitary business. Even the prized trading positions at Wall Street mostly involve analyzing markets alone and making trading decisions independently. Today, however, a paradigm shift is occurring wherein traders are turning to their professional colleagues for signals. Dubbed as “social trading”, the global trend does merit several advantages, but the potential downsides to participating in such nascent and untested environment is prevalent.
Basically, trading in a social platform involves online investors or traders relying on user-generated data to enter and exit trades. The data is collected from different Web 2.0 programs and becomes the major data source for inexperienced participants. The process creates a new dimension of analyzing financial information by building a database to compare and copy trades and trading strategies. It becomes sort of a social media platform like Facebook and Twitter, but geared towards traders and investors in terms of environment, support, and content.
Whether it’s out of sheer curiosity or prudent research, you’re probably aware of the fact that consistent success in trading is low. Social trading, on the other hand, adds a twist to this depressing statistic by providing guidance from actual people concerning which markets to trade and what type of order to execute. So, do you profit from it? The answer to such question depends primarily on who you are following when it comes to trading signals and how well you can integrate their particular style or technique. It’s not just about finding someone who’s at the top of the list. You also have to be aware of their risk profile and investment horizon goals.
Trading information has been accessible for many years now. It has circulated across the net as well as thru tangible materials like business papers and magazines. Social trading, however, differs in that it brings the element of automation as well as an interactive feel. Let’s first discuss the first difference. Automation is one of the bread-and-butter features of social trading platforms like AlfaTrade. If you are 100 percent confident that a featured trader is trustworthy and knowledgeable, you can set your account to take trades automatically whenever the said trader does. If you wish to learn how to trade independently in the future, however, you can use such platforms to share ideas and opinions about the market and trade based on collected information hence the interactive experience.
First and foremost, choose a platform. There’s more than 10 different social trading platforms currently being offered. Getting started may involve slightly different procedures for each platform, such as AlfaTrade, but the whole process in general is fairly simple and similar to opening a conventional account. Once you’ve chosen a platform, create an account by visiting their official website. Requirements for opening an account include your existing trading account, if any, and other personal details for verification. After getting approved for an account, you’re all set to peruse the list of pro traders you can follow or copy trades from.
Choosing a featured trader to follow or copy trades from requires surgical precision. You don’t want to be blindly entrusting your hard-earned cash to just any inexperienced and irresponsible retail trader out there. To learn more about a trader you are interested in following, you can simply click on their profile and information about their portfolio as well as current events on their news feed should pop up. This design implementation helps new users become more comfortable in using the platform since it resembles social media websites they presumably visit on a regular basis. When prospecting for traders, look at their stats including lifelong P/L, maximum trades per month or year, maximum losses and gains per trade, etc.
While social trading does ease the transition from complete novice to intermediate level trading, you must treat it as a business rather than a money-milking machine. And as with any type of business, social trading involves a level of risk of losing a portion or the entirety of your capital. Make sure to trade with money you are prepared to lose. If you have a sizable amount of capital to invest in social trading platforms, distribute it amongst traders who have different trading styles and risk profiles. This allows you to participate in different markets and capitalize on price action that’s occurring within different asset classes.
So, is social trading something you should be trying? Absolutely. Allocate only a portion of your available capital, and use the rest to set up your own trading account from which you can learn and experiment with strategies you are comfortable using. Soon, you may even qualify to become a pro trader and have inexperienced traders following you.