Being a Follower in Social Trading
Investors who choose to invest their money with Social Trading are called Social Traders, or even “Followers“.
Basically, it’s precisely what they do, ie following traders’ signals.
This doesn’t mean that, to be successful, the only thing a follower has to do is following someone at random, and the game is done. This would not be investing, but tempting fate.
A follower must first arm himself of the right mindset, and then of the right knowledge. In this lesson we will see together the main characteristics that a follower must possess.
A Follower is an investor who has decided to make his own money work for him.
First of all, a good investor invests only the capital that, in the event on being undermined, it would not hurt his financial status. He never puts into play sums of money that could jeopardize the stability of its economic and financial situation.
On the other hand, a follower is aware of what it means to keep all the money in the bank. While this may give security, on the other hand he realizes that all his money is deposited according to the value of a currency, and that the value of his savings, in any case, is subject to the changes in the currency exchange market.
For this reason, diversifying to some extent the use of money is a good technique to increase the financial protection.
A Follower’s goal in Social Trading
What the purpose of a follower could be?
Here we enter into a very relative field, because the goal of a follower investor is something personal and, above all, that must be made clear at the outset.
One of the most common goal in the investment world is to achieve an annual return of 4% or 5% on the investment, in order to shelter the money from inflation and maintenance costs. This is a very conservative and respectable goal.
With Social Trading, however, it is reasonable to aim to much more. A follower knows that with Social Trading he will exploit the potential gain that Retail Traders can achieve with their trading on the Forex market and CFDs. The amounts of revenue that good traders can realize are much higher than any other investing method we have seen in the first course. There is no comparison, and it’s not necessarily true that with these traders or Signal Provider an investor will risk more, compared to entrust his own money to someone else who invests it for him.
We are plenty of incidents of people who have entrusted their own money to the so-called “experts”, and then, all of a sudden, they discovered their money was not there anymore. Not that it was necessarily stolen, but maybe just invested badly in risky operations.
With Social Trading, how much you want risk is up to you, and most of all, money are always in an account belonging to you, and you can check their status and what Signal Providers are doing whenever you desire.
The Retail Trader manage the trading risk in first person, and thanks to this responsibility, his earnings are much higher. A Follower runs the risk in first person too, but not of direct trading, as traders, but of the management of the traders themselves.
That’s why the earnings of an investor Followers may be much more higher than the other instruments.
A follower, then, must know how to manage risk.
He must not know which particular trading technique a Signal Provider uses (if you knows it, however, much better), but it must be able to understand what performance this strategy is able to produce, and especially against which risks.
It’s clear that the risks of a Signal Provider’s strategy will be proportionally reported on the investor Follower’s account, who has decided to follow him. A Follower should always think that when he replicate a Signal Provider’s strategy, he replicates first the risks, and later then, the gains. Reversing this thinking and think first to earnings and then, if appropriate, to risks, can be a very dangerous behavior, if not fatal, for an account.
To make a comparison, we can say that being a follower investor is like being a fund manager and a portfolio manager. The only subscriber to the fund will be you, and you will also be the one who will build the strategy and the portfolio.
As already mentioned, it follows that you will be solely responsible for your money, and your choices will determine the success or failure of your investment.
Having a cutting hedge mentality
Taking these responsibilities upon yourself may seem unnecessary and risky if we think that we may instead delegate them to someone else. On this point, however, it’s necessary to take another step forward regarding the mentality.
The dogma which you must internalize about money and investing is that
the responsibility is always and only yours. Always.
Even when you decide to let someone else invest it. Those who will lose your money cannot be the managers, because by definition that is Your money, not theirs. You can accuse them of everything you want, and maybe you’ll even be right, but you’re the only at the end that have lost that money.
You never have to forget that the responsibility of your money is always and only yours. For this reason Social Trading, which allows direct and constant control on your capital, it’s advantageous from this point of view.
It’s also true that responsibility can cost, because if you’re not prepared to make the right decisions you can take excessive risks and waste money. That’s why we decided to create InvestinGoal and the Investing GOLD area for the advanced courses.
When you will learn how to handle this huge responsibility, you will also have access to the great Retail Trader’s potential, and you’ll be able to take advantage of their performance.
As we’ll see in the next lesson, your first great responsibility will be to know the factors that characterize the Signal Provider’s style and strategy, and then to know how to analyze them.