A Beginner's Guide to Social Trading

logomark Anthony Gallagher calendar Last Updated: November 2021 timer 5 min read
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There are many key features that make one a successful investor, which inevitably includes following up with the market trends, interpreting trading charts, reading analytic reports, researching and, at last, but not the least, you need to be aware of the risks involved.

That is how social trading and social trading platforms come in handy, carrying a load of benefits with it, especially to careful investors and traders who are yet not feeling ready or confident enough to operate their personal investments by themselves.

The last generation of investment discipline has made possible that practically anyone is able to join the pool of investing in markets like Forex and Stocks, that way dictating social trading advantages and enabling a more conscientious trading.

Table of contents

List of Benefits of Social Trading for beginner traders

Here are some of the most crucial benefits of social trading that might convince you into going for this trading mechanism.

1. Accessibility and Reliability of Information

One of the main benefits of social trading is mirrored by the fact that platforms which advocates for this trading strategy contain immense quantities of useful and reliable information.

Moreover, this information is highly valuable to investors, specifically those who are less experienced or don’t have the needed knowledge or confidence for solo trading operations.

At the same time, the additional value of social trading is provided with the increased accessibility of information which is crucial to investors, which means that you as a trader will be able to take advantage of helpful leads that will aid you in making investments.

2. Collective Knowledge in Trading

Another one of many social trading advantages is collective knowledge or Wisdom of the crowd, meaning that a group of people will have more knowledge to oppose to an individual, sharing that knowledge for “the greater good”.

In the case of social trading, the collective knowledge is created by having access to independent (not always) opinions of other traders on the evolutions of the markets on which they want to trade.

That is how social trading provides you with useful first-hand insights which are actually a product of collective knowledge of many individual traders and investors.

Tracing the history of social trading, it becomes evident that this trading mechanism was invented to take advantage of collective knowledge gathered from multiple simultaneous actions made by active investors that a not-as-skillful individual can turn in his advantage.

3. Diversified Strategies

Individual trading has its perks as you can perform trading operations under your own terms and with strategies that you have already tested by yourself. However, regardless of your level of experience as a single trader and the number of various strategies, you won’t be able to calculate all possible outcomes of trading by yourself.

We are often neglecting the dual perception, commonly being focused on our own point of view with lack of sharing ideas, it is not too hard to miss an important aspect of trading or a potentially successful trading strategy you haven’t heard off, whereas a group of traders can discuss their way towards observing the situation in the market from several angles that way presenting diversity in trading strategies.

4. Reduced Costs of Becoming a Professional Trader

Another one of the many benefits of social trading lies in the fact that you are significantly lowering the costs needed for you to become a professional trader. Once you decide to become a pro in the world of investing and trading, you will surely need to invest additional money as well as find more time for learning.

By going for social trading, you can actually start trading with reduced risk in oppose to the traditional way of individual investing even though you lack expertise.

5. Learning from Examples

In social trading (especially with copy trading) you are actually copying other investors’ trades, that way trying to turn a profit from your original investment. That is how besides from lowering the risk that despite the simplified ecosystem of social trading still represents a risky operation by itself, you can actually learn from more seasoned investors.

You can then observe this type of trading as a way for you to learn while you earn, eventually becoming ready for individual investing if your interest is pulling you in that particular direction.

6. Becoming Part of a Community

Becoming part of the community of seasoned investors is definitely a huge plus in the world of trading.

Just like investors usually have a mentor that helps them with different ideas, insights, leads, proven strategies, and trading tools, social trading can be observed as a social network where you can seek support, not from a single but from many different non-proclaimed mentors.

What might be one of the most important perks and also one of many social trading advantages is the case where you are able to share and exchange ideas, leads, and information, also entering into many potential collaborations with other investors.

7. Easy Start

Although it might sound a bit sassy, social trading as well as social trading platforms, that offer this type of trading strategy, like eToro for instance, can be observed as beginner’s haven in a nutshell.

That is how any interested trader although inexperienced can turn social trading advantages into a personal advantage by copying trades and relying on the moves of more seasoned traders and investors that are operating through social trading.

It’s as simple as it sounds; however, trading by copying other investors’ trades still comes with a risk, so you should always be cautious when choosing to create your portfolio.

8. Social Trading Benefits and Risk Management

One of the benefits of social trading that certainly cannot be forgotten is the case of having the improved skills for managing the risk that always comes hand in hand with trading.

By following up with diverse and various strategies as you are copying the traders from other investors, you will be able to learn which strategies work and which are not as effective.

That is how with social trading, you can learn how to assess the risk and improve your risk management skills. That way, you are able to prevent potential loss with your future trades, getting your lesson hopefully at a low cost.

Altogether, these benefits have placed social trading among some of the top trading strategies for beginners, thanks to the lower risk and more opportunities to become a better trader while you are practicing with real stakes – your investment funds.

About the Author

Anthony Gallagher

Broker Expert

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world.

A trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

He is a keen golfer with a very high handicap so when not helping you find the best broker for your needs, you may find him on the course or just as likely following any number of sports from the comfort of his sofa.

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