Next to Forex brokers, Binary options brokers there are social trading platforms. A concept based on copying a successful trader’s trading practices. Previously, we outlined the benefits of this practice, today we take a look at the top social trading risks.
21 March, AtoZForex – Think social trading, and it seems as easy as it gets. Enlarging a portfolio does not have to be a mammoth task. Especially when all you have to do is copy a successful trader and his trading practices. This is effectively the underlying concept of social trading.
But what if copying/following goes all wrong? While social trading provides small investors with a chance to exploit their opportunities. It does not necessarily mean that this practice guarantees investestors the required results also.
For this very reason, social forex trading is a practice, which should be considered carefully. You should not take any rush decision and jump into it blindly. The growing number of social Forex traders has put a lot of undue pressure on social trading platforms. A lot of new traders are taking unnecessary risks through different strategies. Without, the trader taking into consideration the consequences of the future.
New traders need to be cautious of top Social Trading Risks
Millions of traders around the world use social trading platforms to implement the strategies they have learnt by copying other traders. From one perspective, it seems that these traders are taking the required steps to ensure their policies are put into perspective before implementation.
However, in reality, they are blindly copying everything termed as successful. Eventually, this behaviour lead to losses for a trader. At the same time, a novice trader causes their social trading platforms heavy losses. Due to the lack of trading education. Such practices cause discomfort in the minds of social trading platform owners. Since it gives them a bad reputation in the long run.
Don’t underestimate the lack of education
If lack of education is an issue on one side, the capacity to undertake massive risks is yet another problem for new traders. Such operators enter the platform to make some quick bucks off other traders’ strategies. What they don’t understand is that in the process of ‘copying’ it is imperative to comprehend that the capacity for risk also needs to be defined. So that there is a cap or an upper limit to their resources. Due to a lack of trading education, such traders rely heavily on the doings of other traders. Often this results into major trading calamities for the traders.
Recently, we explained how important it is for traders to only deposit their funds with regulated entities, such as anyoption. Similar to the Forex and Binary Options market, one of the top social trading risks deals with scams. Many people follow other people with significant investments, to trick them into investing. This way, large funds are moved from one party to another. Thereby causing losses for the original traders. This is not the intention of trading Forex.
Last but not the least, social trading platforms are also to blame for some of the new traders following others blindly. The algorithms, which rank the successful traders on such platforms, often mislead traders into thinking the high performing traders are to be allotted high scores. Since novice traders are just starting out, they tend to consider it their cue to follow such traders, which in turn only incur heavy losses.
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