September 15, 2021, | AtoZ Markets – Although a relatively novel forex trading concept, social trading has grown quite popular in recent years among retail forex traders. So much that many have called it the next big thing in the social media evolution.
For years, internet users have shared information about top destinations to visit, best restaurants in town, or helped each other navigate the streets in new locations. Using a copy trading platform follows pretty much the same principle as conventional social networks where users can communicate with each other on an ongoing basis and share information in real-time. Social trading introduces an era where the power of social media is being leveraged to access information about the market.
Unlike conventional trading methods where a person does his or her own fundamental and technical analysis for trades, social trading solutions allow traders to rely on market information provided by other users. The result of this is that newbies and beginner forex traders can make trades successfully without having to do their own analysis since their investment decision will be based on the analysis by others.
Can Forex Social Trading Scale Your Business?
Social trading provides you with the skills, knowledge, and wealth of experience to manage the potential risks that come with trading. By following the different strategies and analysis of other traders and investors, you will be able to learn which strategies are effective and which ones are not in order to scale your own trade better.
Social trading makes trading easy
Ease is the most notable benefit of social trading. While there are a lot of resources available to help forex traders analyze the market and place profitable trades, the fact remains that avoiding losses can be difficult especially for inexperienced traders. Copy-trading provides an easy way around this by allowing you to follow other traders and base your trades on the decisions of experienced traders. Many have likened this to having the answers to a test before even writing it and they are not far from the truth.
Leverage community knowledgebase
The purpose of social trading isn’t merely to duplicate trades. Social trading solutions give you access to thousands of traders on the same platform interacting with each other and discussing viewpoints and strategies. The result of this is a more extensive knowledge of the market and how to trade successfully based on how top performers make their own trading decisions. This inherently limits the risks of your trades and increases your chances of making a profit. One of the main goals of this trading mechanism is to allow not-so-skillful traders to take advantage of the collective knowledge base collected from the simultaneous actions of various active investors
Avoid personal biases
This is something that affects even the most seasoned traders. One of the problems of trading as an individual is that your decisions are subject to personal biases and emotions. You limit the impact this has on your trades when you trade as part of a group. For instance, an individual may make a bad decision due to emotional reactions when a trade starts to show a loss. But when you trade as a part of a unit, you can base your responses and action through the eyes of others and see it from an unbiased perspective. Social trading also gives you the benefit of seeing things from diverse perspectives. No matter how experienced you are as a trader, you cannot calculate all the possible outcomes of a trade on your own. Social trading introduces a diversity of trading strategies from different traders seeing the market from various angles and this boosts the potential of a successful trade.
Potential Limitations of Social Trading
Finding the right social trading platform and the right brokers to follow are two of the major factors that make copy trading relatively challenging for retail traders. There are several social trading solutions out there all offering the promise of a successful copy trading journey. This can make it difficult for a trader to determine which platform will be right for them.
The biggest advantage of social trading platforms could also be the biggest limitation. These platforms allow users to freely share and exchange information about trades. However, just like choosing the right platform can be tricky, being able to decipher which trader or broker is good or bad can be difficult as well especially for newbies.
Aside from the possibility of following traders whose risk-taking strategies could put your trades at risk, there are also devious brokers that can try to make use of a good platform for their own scheming purposes. Being able to sieve through which traders to trust by setting some solid criteria before setting up your own trading account can make all the difference.
Social trading is indeed one of the easiest and fastest ways to scale as a retail forex trader. Joining a social trading platform or engaging in other means of copy trading can be quite beneficial. Of course, there is a need to be careful since there is no way to be absolutely sure about the traders on the network with you. Important questions like how successful these traders have been over the long term? Do they apply strategies that match your own goals? And whether or not these strategies will bring you profit in the long run? Are critical to determining whether you should apply a copy trading technique for your trades.
With social trading, you get to enjoy the unique opportunity of sharing information about the forex market with other traders. For a retail forex trader or investor, this can make it a lot easier to scale your business fast. You are essentially learning from others while you earn. Social trading solutions allow you to trade either in collaboration with other users or simply take the information you get from these platforms and apply them to your trades.
Just like conventional social networks connect you with friends and family, Social trading networks provide an atmosphere where both newbies and veteran traders can share ideas, strategies, and data for their collective benefit. The key of course is to find the right platform and follow the right traders from a long list of successful traders on the leaderboards of your chosen copy trading platform.