What Is Social Trading?

The profile of Social trading has risen considerably in the last couple of years with a huge number of social trading and copy trading products popping up. The proponents of social trading say it has the power to revolutionise the way people access and trade financial markets. Built on the back of Web 2.0 technology, social trading networks allow individual traders to see the positions of other traders as well as share their opinions regarding the markets. An important aspect of social trading, is what is generally known as copy/social trading which allows traders to automatically copy or mirror the positions of successful traders. 

Social trading has the potential to democratise the financial markets as it means that those who don’t have experience and trading knowledge could potentially make money from the financial markets. Brokerages have been quick to catch onto this and realise that social trading may help them reach out to new clients who wouldn’t have otherwise been interested in trading financial markets. At this point you may be asking yourself why successful traders would be willing to share their successful trading strategies with others. Social trading networks are set up in the way which means that the top traders/signal providers receive commission based on the amount of business they bring to a brokerage or social trading network. These commissions can add up and it is estimated that some of the top traders on ZuluTrade make $20,000+ a month in commission.   

Does Social Trading Work?

As with most forms of social trading there have been horror and success stories. Many people have made some pretty impressive returns with social trading while others have seen their accounts blown up. Social trading success depends on the signal providers you opt to follow delivering high quality trade signals and employing proper risk management. There have been many top traders who have performed well for a while before going onto to blow up their accounts. This has led many people to be very sceptical of social trading in general. While social trading doesn’t require trading skills parse, it makes you into a fund manager where you have to identify which traders will provide you with consistent and long term return.

In response to worries about the quality of signal providers many networks have introduced strict monitoring and requirements in order to become a signal provider. This has helped improve the situation as it helped crack down on high risk signal providers who put users money in serious jeopardy. However there still remains a huge risk when using social trading networks and it is strongly recommended that you don’t trade with money that you can’t afford to lose.

The Major Social Trading Networks

eToro

eToro launched way back in 2008 claims to be the world’s largest social trading network with over 200,000 users. The network allows users to trade a range of different instruments including Forex, Stocks, Commodities and Indices through CFD’s. The eToro social trading network feels very much like more traditional social networks and encourages users to interact with each other, creating a lively and active community. 

ZuluTrade

ZuluTrade launched back in 2008 boasts over 30,000 active signal providers ensuring that users have a huge choice when picking a signal provider to operate with. The ZuluTrade network has less of a social feel and is broker independent which means users can pick one of over 40 brokerages to use the platform with. ZuluTrade is particularly popular with signal providers due to the platform syncing with MetaTrader 4 allowing users to provide signals using EA’s. ZuluTrade continues to be one of the biggest names in the world of social trading.     

MyDigiTrade 
While MyDigiTrade is not as well known as other the copy trading networks already mentioned, those interested in social and copy trading may want to consider the service. Unlike ZuluTrade MyDigiTrade does not charge users of the service and instead makes it's revenue from acting as an introducing broker to the twelve brokerages that support the service. The platform boasts an impressive range of signal providers to choose between and those looking for a decent alternative to ZuluTrade or eToro would not do badly to try out a free demo account with the service. It should be noted that the platform does feature a number of traders using high risk strategies and the service seems to do little vetting before signal providers are able to start earning commission from their trading activity.