What is a social trading network?
Social trading network or a social trading platform is similar to Facebook or LinkedIn. However, social trading goes beyond just networking and making friends. Social trading network also offers to share trade recommendations and even trading ideas and signals.
Social trading is something new that has grown exponentially in the past five years. When talking about social trading, the name eToro cannot be missed. eToro was one of the first social trading brokers that pioneered the concept.
With adequate funding from institutional investors, eToro has today become a household name when it comes to social trading network. There are many benefits for traders as well as customers who want to invest their funds.
Unlike investing with a fund manager, social trading brings a lot of transparency. Thus, for the most part, social trading transparency is at the forefront which is one of the reasons why it has become such a big trend.
A social trading network simply connects investors or newbie traders to invest their funds in a professional trader’s account. The trades are replicated automatically and potential investors can always choose the type of trader they want to invest in.
Benefits of using social trading networks
There are apparently many benefits for traders at all levels. Beginners can simply join a social trading network and allocate their funds to the top trader. A successful trader on the other hand can publish their trading results and attract new customers or clients. With a ready base of both traders and investors, it is a win-win situation for all.
Others can simply connect with other traders, share trading ideas and recommendations and network with likeminded traders and build their network accordingly.
Since the early days of eToro, social trading platforms have evolved and have given rise to a number of other concepts of trading.
Besides brokers such as eToro and social trading portals such as MyFxbook or FxJunction are some of the well established names in social trading. These portals act as an intermediary, connecting successful traders and potential customers who want to invest.
The common theme to these is the fact that successful traders or fund managers can sign up with at least three months of trading history. Of course, the bigger the trading history, the better the prospects.
The social trading platform automatically calculates the trader's profitability and gives them a ranking.
This in turn helps potential investors to pick and choose the forex fund manager based on their risk tolerance and of course returns.
An evolution to the social trading platform has led to the creation of fund management portals as well. A good example of this is Darwinex which allows traders to connect their trading history to the system.
By providing statistical data, potential customers can also pick and choose which trader they want to invest funds with and shows advance trading and statistical data.
How to get the best out of a social trading network?
For aspiring traders and successful traders alike, joining a social trading network can be the first step towards establishing yourself as a fund or a money manager. You can completely start off with a new trading account or look for the appropriate social trading network that allows you to connect your existing trading account.
Typically, 3 months of trading history is required, but it is always to your benefit that you have at least one year of trading history which will add credibility to your trading statistics.
Successful traders can make money when other investors or traders put their funds in your account. This way, you can earn additional income as well. Sites such as Zulutrade have been existent for a long time and there are many more that have evolved since then.
For investors, a social trading network is an ideal fit. For one, you do not need to have an investment amount of $100,000 but you can start off with as little as $500 or more to get significant returns. There is the added security of transparency with social network investing.
This is completely different from a PAMM forex account where there is a risk of losing your money and there is not much of transparency. Furthermore, the commissions are typically higher with PAMM funds.
As social trading networks continue to evolve, you can find that the commissions charged by the fund managers are cheaper compared to a PAMM. You also have the option to control how much of money to be allocated to a trading guru.
This allows investors to spread their risks across different money managers or trading gurus at the social networks.
In conclusion, the story of social network trading is one that is marked by significant growth over the years. The fact that these days, forex brokers are also adding features for social trading is a testament to the fact.
Whether you are a fund manager or an aspiring trader, or an investor, the social trading network is definitely a game changer.