Social Trading: What It Is and How To Make Money

In this article, you'll learn what social trading is, the types of securities you can trade, and the various social trading platforms available to users like you.

What Is Social Trading?

Social trading is an innovative approach to investing that allows users to observe and replicate the trades of successful traders. Think of it as a blend of investing and social networking – you can follow experienced traders, analyze their portfolios, and even automatically copy their trades with just a few clicks. It's a democratizing force in the financial world, opening doors for newcomers who may not have the expertise or time to research the markets themselves.

Simply put, social trading platforms allow novice traders with varying levels of expertise to copy trades made by more experienced traders using the same trading platform.

This can be done on either a straightforward "buy-and-hold" basis or set up in such a way that your account replicates the winning trades in your chosen social network. The idea behind social trading is that if someone you respect is making consistent profits, you can gain similar results by following them without fully understanding the complicated market analyses at play.

A great example of this is Barclays and Novus. They found a return of 4% just by copying hedge fund trades - and that was using a significantly less refined method than what you're about to learn below.

Many people are growing interested in social trading because of its market-agnosticism and versatility. Instead of spending years studying a particular subset of the market, you can simply emulate what high performers in that niche are doing every day. 

Even if you're already experienced with it, social trading can still offer plenty of opportunities for you. For example, veteran traders can try their hand at building up their following by offering valuable insights and advice on their "investment diary" to encourage others to follow them.

Benefits of Social Trading

The appeal of social trading lies in its accessibility and learning potential. For beginners, it eliminates the steep learning curve associated with traditional investing. By following seasoned traders, you can gain valuable insights and strategies while potentially generating returns. Social trading also offers diversification benefits, as you can spread your investments across various traders and asset classes. Moreover, the social aspect fosters a sense of community and shared learning, making investing a more engaging experience.

Risks of Social Trading

While social trading offers enticing advantages, it's crucial to acknowledge the inherent risks. It's important to remember that past performance is not indicative of future results, and even the most successful traders can experience losses. Over-relying on others' decisions can lead to impulsive choices and a lack of personal understanding of the markets. Additionally, platform fees can eat into your profits, and market volatility can quickly change your fortunes.

How Social Trading Works

Getting started with social trading is surprisingly easy. First, you'll choose a reputable platform that aligns with your investment goals and risk tolerance. After creating an account, you can browse a vast network of traders, filtering by performance, risk level, and asset class.

Once you find traders you want to follow, you can allocate a portion of your funds to copy their trades, setting parameters to manage your risk. The platform will then automatically mirror their trades in your own portfolio.

What Securities Can You Trade? 

The beauty of social trading is that there are so many different options available. For example, social traders frequently invest across the board in forex, cryptocurrencies, CFDs on commodities, indices, and shares from global markets rather than being restricted to one market or asset class.   

Social Trading Platforms

There are many different social trading platforms available to help you get started. Our advice? Make sure it suits your needs. Different platforms offer different benefits and lend themselves to different trading strategies.

Here's a list of a few of the best social trading platforms to date:

eToro

eToro is perhaps the biggest name in social trading apps right now, and this comes as no surprise with how much they offer to their users. They routinely allow you to trade over 1,500 different financial instruments and also offer copy trading, a social network, and an investment community where you can learn & interact with other traders.

ZuluTrade

ZuluTrade follows a similar formula as eToro. Its platform offers copy trading and the ability to set up an investment community where investors can discuss their trades within chat rooms created by other traders, making it easy to grow a network and generate a following.

AvaTrade         

AvaTrade is a relative newcomer to the trading scene, but it's a fast-growing and intuitive social trading platform.

One of its popular features allows new users to open a demo account to try out the platform and see if it suits them before investing real money. That way, you can test everything according to your own time and with no financial risk before deciding to join.

If you like what you see, simply transfer your existing funds over from your previous broker, and you can start copying trades right away.

How to do Social Trading on eToro

It's effortless to get started with social trading on eToro. All you need to do is create an account using their simple online system and deposit your funds. Once your account receives money, you can start searching for the traders you wish to copy.    

If you want to trade CFDs on cryptocurrency, for example, simply search for "cryptocurrencies" on the investment section of your chosen trader's page. From there, copy the trades that pique your interest by clicking on them and following their account.

You can also use the built-in comparison tools so that you can see which traders are performing the best across different digital currencies.

As with any trading endeavor, remember not to put all of your eggs in one basket! Diversification and drawing inspiration from many other traders is key to a successful trading strategy.

Conclusion

Social trading is an exciting new way to trade that makes it easy for anyone to get up and running in the modern economy. So long as your portfolio is diversified and balanced, social trading can be a fantastic way to grow your investment quickly and with relatively low risk.