Trading has undergone many changes over the past decade, but social trading and copy trading have dramatically improved their functionality. New approaches to trading not only allow beginners to learn from advanced traders but also create social environments that make financial markets accessible for everyone. Also, copy trading allows novices, in particular, to catch up with professionals through the possibility of automatic copying of trades performed by successful traders. Nowadays, it is more and more common for brokers – for example, MTrading – to offer their traders an opportunity to practice social trading using the knowledge base of the trading community.
Understanding Social Trading
Social trading is among the newest phenomena within the financial world, essentially an integration between conventional trading and social networking. In other words, social trading simply provides traders with a platform where they can share strategies, insights, and performances with other traders. It allows traders to share in this environment and follow other successful traders, learning from them and furthering valuable insights into market moves.
One of the main features of social trading is transparency. For instance, other traders can observe the performance history of other traders, their win rates, the type of trading strategies applied, and how they handle risk. Such transparency will enable less-experienced traders to make conscious choices as to what traders they want to follow and whose strategies they want to copy.
Social trading platforms usually provide a whole suite of tools and features focused on the ever-greater successes to be realized in trading. These may include discussion forums, news feeds, and options for live chats, hence allowing traders to communicate in real-time with each other regarding recent market trends. In building this kind of community, social trading sites can foster supportive atmospheres of cooperative development.
The Emergence of Copy Trading
Copy trading, in turn, is an even more professional version of social trading, which presses the very notion of collaboration one step further. While in social trading, traders are sharing strategies and ideas, in copy trading, you can literally copy the trading activity of advanced investors. That means that each time a trader whom you decide to copy places a trade, every trade will be executed in your account proportionally with the sum of money you have dedicated to the operation.
Copy trading has become extremely popular because it simplifies life for beginners. Instead of sitting for hours in front of the screen, analyzing charts and studying market indicators, or even trying to think out some kind of strategy, novice traders can simply use the opinions of experienced pros. Not only does this save time, but it also cuts down the learning curve for those new to the financial markets.
The mechanics of copy trading are straightforward. Traders choose a lead trader whose investment strategy resonates with the trader’s objectives and risk tolerance. A copy trading system automatically replicates the lead trader’s portfolio positions onto the follower’s account, so both traders hold the same trades in their portfolio. In any case, the follower still owns his account and benefits from the lead trader’s experience and expertise.
Advantages of Copy Trading
Copy trading offers several distinct advantages for traders of all skill levels:
- Beginner-Friendly
For beginners, financial markets are a very daunting place. Copy trading provides an avenue for beginners to get into the financial markets without needing to develop strategies. By following experienced traders, they get exposure to the markets and possibly profits while learning how a professional trader operates.
- Time Efficiency
Trading consumes an immense amount of time and effort by constantly watching the markets, studying the data, and taking the trades. In that respect, copy trading will save a lot from that burden by automatically performing the trading activity. This frees up time for other interests once the trader chooses the lead trader to copy; the system will take over the rest of the work.
- Diversification
Diversification is one of the basic notions underlying investment. It provides a way to decrease risk by distributing investments among a variety of instruments. In copy trading, one can copy some lead traders using different strategies. Thus, this may provide an opportunity for reducing losses and capturing steady returns.
- Emotional Control
One of the major challenges in trading is emotional management. Fear and greed will often drive a trader to make impulsive decisions that always result in losses. Copy trading removes some of the emotional pressures by automating the trading process. Since the trade would have been executed automatically, it is less likely that traders would make emotionally driven mistakes.
Key Considerations to Succeed in Copy Trading
While copy trading has a lot of advantages, you must have a coherent strategy and understanding right from the very beginning. The following are some key considerations necessary for successful copy trading:
- Choose the Right Lead Trader
Success in copy trading is significantly pegged on the performances of the lead trader whom you follow. That means advanced research is necessary to find the right traders to follow: track record, risk levels, and trading strategies. Look for a trader who can exhibit consistent performance over an extended time because that indicates dependability in his strategy rather than any short-term luck.
- Diversification of Your Copy Trading Portfolio
Also, diversification is important when it comes to investing traditionally; when copy trading, diversifying your portfolio is equally crucial. Never put all your capital under one lead trader; try following several with different strategies and risk profiles. This can give some balance to a portfolio and decrease potential losses from one trader significantly.
- Performance needs to be reviewed regularly
While for the most part, copy trading is automated, it is nonetheless necessary to check periodically on the performance of those traders you have followed. Markets can be quite volatile, and the strategy of a lead trader might no longer match your goals of investment. Be ready to change your copy trading portfolio when that’s the case and to switch to other traders if needed.
- Understand the Risks
As with all forms of trading, there are associated risks with copy trading. Although there is some profit potential, one should never guarantee success. You should consider this form of trading with a sense of realistic expectation and possibly some potential for loss. Besides, copy trading means fees charged by brokers. This is because some of the brokers will charge either a commission or a performance-based fee.
MTrading and Copy Trading
This interest has reached such a point that brokers such as MTrading have felt this demand for copy trading services and provide traders with an avenue to take part in this trend. MTrading allows their clients to enhance trading experience by capitalizing on successful traders’ expertise and eventually earning better results. Always, as is often said, make sure that you will read all the terms and conditions of any copy trading service and that it fits your goals for trading.
Conclusion
Both social and copy trading have fully changed the dimensions in which traders interact with the financial markets. By encouraging cooperation and making it possible for traders to learn from others, these methods democratize trading and make it more accessible to more people. Be it a novice wanting to learn the ropes, or an experienced one trying to diversify his or her strategy, social and copy trading have something to offer in these digital times.
Image: DepositPhotos
