Social trading platforms are a place where successful traders can share their experience and earn more from their trades. At the same time, novice investors can reduce their risks by automatically copying the trades of selected traders. For example, Bidsbee is traders social network where traders and investors can connect, follow each other, and communicate.
The success of traders is evaluated based on their efficiency, risk management, profit stability, and other factors. All these data can be viewed in the general rating, making a well-informed decision about the feasibility of copying the strategy of a particular professional. However, you can set up the copy trade feature once you find a trader with great performance. After that, every time an experienced trader opens or closes a position, the same trade will be executed in your account in proportion to their investment amount. You can monitor all operations in real time and, if desired, adjust the parameters of the copied transactions: change the investment amount or completely stop the copying connection.
Getting Started with Social Trading
Before registering an account on any platform, explore all the options to choose the best one. Consider factors such as user interface, available features, supported markets, and security measures. When it comes to variety, you can access the best systems in almost every country worldwide. They can include BidsBee and eToro, InvestMates, NAGA, ByBit, and other platforms. The process of creating an account and getting started is similar in all cases:
- Register and go through the identification process. You may need to provide documents such as an ID or driver’s license.
- Make an initial deposit of at least the recommended minimum set by the system.
- Analyze top traders, considering their reliability, profitability, risk minimization measures, and statistical data.
- Determine a fixed amount or percentage of your overall balance that you plan to use for copy trading.
- Observe as automatically copy positions opened and managed. Adjust and configure your own take profit and stop loss levels to protect your investments.
Benefits and Risks of Social Trading
There are many advantages to copy trading, outweighing the risks. Let’s take a closer look at all the details.
- The ability to utilize professional and complex strategies even without experience.
- A wide community of professional traders that foster career growth and quickly enter the profession.
- Effective hands-on learning of trading tools, strategies, and methods.
- Convenient investment diversification is achieved through copying trades of different traders, essentially distributing investments across various markets and instruments.
- The entire copy trading process is highly automated, but you can still manually monitor operations and make adjustments.
- Excellent opportunities for generating passive income, as profits are generated even without your active involvement in the process.
- Trading results are not always profitable, so the risk of financial losses remains.
- You rely not on your own knowledge or analysis results but solely on the success of another trader.
- By copying trades, you relinquish control over the execution of individual trades and decision-making.
Types of Social Trading
Copying trades are the most popular form of social trading, which essentially involves automatically copying the trades of successful traders. This trading method allows you to leverage the experience and effectiveness of market professionals freely, saves time, and expands your possibilities by copying multiple strategies from different traders. However, there are other methodologies in social trading.
This form of trading allows you to execute trades in real-time synchronization with the accounts of selected investors. This means that any changes or modifications made by the chosen traders will be reflected in the mirror trades. The entire strategy is replicated, including entry and exit points, position sizes, risk management methods, etc.
Social trading networks
Instead of blindly copying the experience of other market participants, you can learn from the best and consider their advice, recommendations, and lessons. In other words, you can utilize a social trading platform as a professional community whose potential you can tap into for rapid learning and effective profit generation through individual comments and suggestions but always based on your own decisions.
Financial Aspects of Social Trading
Each platform has recommendations regarding minimum deposit, trade size, fee structure, and spreads, among others. Consider these factors when choosing the best exchange for copy trading.
Be sure to determine the amount of capital you are willing to allocate for copying trades and ensure that it is an amount you can potentially afford to lose. Avoid risking a significant portion of your capital on a single trade. Lastly, remember to protect your capital and manage potential risks. Stop-loss and take-profit orders are your best friends at this stage.
Profitability of social trading
Inspiring stories of successful copy traders may motivate you to dive into this field, which can be a good decision. However, keep in mind that profitability always depends on how well you choose the trader whose trades you copy, as well as market conditions and sometimes unforeseen circumstances, such as periods of volatility or specific events in the world. That’s why it’s crucial to diversify your portfolio and never risk amounts that exceed what you can afford.
Safety and Regulation in Social Trading
Well-known social trading platforms employ reliable security measures, including:
- Encryption during data transmission;
- Compliance with regulatory requirements in regional jurisdictions and holding SEC or FCA licenses;
- Adherence to anti-money laundering (AML) and know-your-customer (KYC) requirements;
- Providing users with comprehensive information about all potential risks;
- Strict data protection policies, including adherence to GDPR regulations;
- Customer support.
Final Thoughts on How does Social Trading Work
So, social trading is an interesting and effective way to start a trading career or earn additional income if you have already achieved some success in this field. However, to make a profit, you need to choose the platform correctly and the traders you want to follow and learn how to manage the risks that inevitably occur in this industry.