What is Social Trading?
The term “social trading” refers to a method of trading in which investors and traders follow in the footsteps of more seasoned traders. While most traders do their own technical or fundamental analysis, some prefer to look at and copy the work of others they think to be more competitive. Because it allows traders to communicate with one another, keep tabs on other traders, and get insight into how they make decisions, social trading sometimes looks similar to social networking.
History of Social Trading
People assume social trading to have existed since the beginning of the 21st Century. It was the time when traders realised they could make money by selling their trading ideas/information to other investors, so they came up with the idea of an email trading signal.
Initially, traders did it via email alerts. A small dedicated group of early traders used to send email alerts to the rest of the group from their personal computers at home. People referred to them as “signal providers.”
However, traders with a 9-5 routine didn’t like this method because checking your emails on a desktop was somehow inconvenient for them. Therefore, the first version of copy trading only worked for long or medium-term investors.
Since social networking sites have now risen in popularity, so have the tools for social traders. Many brokerage firms like eToro, Pepperstone and other financial intermediaries have now started offering social trading services via dedicated platforms. Traders can now connect their MT4 accounts with these forums and use their online chat rooms to share trading ideas and receive the relevant information to copy trades immediately.
How Does Social Trading Work?
Social trading allows new and seasoned investors to learn from and copy each other’s positions while providing easy access to financial markets. The advent of technology has made it even more simplified. Clients can either sign up for a full-fledged social trading platform or practice copy trading individually.
For instance, a dedicated social trading platform offers comprehensive strategies for copy trading, while social traders may choose to subscribe to an individual’s channel, who broadcasts his/her positions in real-time and allows copiers to imitate the trades, just as on a social networking platform.
Social trading networks often display the success rate of their members on their leader boards, which earns skilled traders both income and popularity. Since social trading has different forms, a certain group of traders might use social trading principles but employ a variety of indicators for opening a position.
Types of Social trading
Multiple types of social trading exist today. Let’s take a look at a few of them below.
Signals or Tips
If you’re new to social trading, looking for trading signals and tips might help you stay in the right direction. For example, traders’ sentiment accessible on the broker’s page or computer-generated signals can offer such insights.
This form of social trade will not impact how people connect. In addition, traders may be unable to ask the leader for clarification on what they observed because of the absence of a medium to communicate. However, this type of social trading allows clients to take positions immediately after finding the respective signals.
Making exact replicas of other traders’ trades is known as copy trading. Many copy trading systems allow traders to replicate the success of another trader by copying them.
Clients choose a top trader from the leaderboard, and all trades the trader initiates get copied to their account.
Copy trading is an automated process that doesn’t need your involvement. Once you have allocated your funds to a leader you wish to follow, all his trades will automatically start replicating into your account.
Forums & Profiles
For traders who want to take their trading seriously while having a good time, forums and online profiles are a must-have. Forums allow them to communicate with other traders, while profiles provide brief information about traders, such as country of origin, favourite markets to trade, etc.
There should be a way to keep track of your open and closed deals on the top platforms and detailed bios and information about your trading style and approach. Keeping this in view, many brokers also provide their customers with access to message boards.
However, clients can usually join in on the conversation in more open forums.
Most of the time, traders use mirror trading while exploring currency markets. Furthermore, there is a difference between copy trading and mirror trading, even though traders use both terms interchangeably. That’s because the technique is replicated rather than the trader.
What currencies an investor wishes to trade and how much they anticipate making or losing are all factors that go into choosing a trading strategy for them (also known as a “mirror trader”).
When a trader opens a position in his own account, the same position is opened proportionately in the investor’s account. Because of the higher capital requirements associated with mirror trading’s high volume and fully automated nature, usually experienced traders go for this option.
Types of Social Trading Platforms
Since you know different types of social trading, let us now discuss different types of social trading platforms.
There are primarily two types of social trading platforms;
1) In-house platforms like eToro, Skilling
2) Third-party platforms, i-e, Zulu Trade, MyFXBook, DupliTrade, etc.
While some traders prefer to use brokers’ proprietary social trading solutions, others may like to connect their accounts with third-party platforms. Let us enlist and briefly summarise a few best social trading platforms below.
Based in the United Kingdom, eToro is the world’s leading social trading platform. The company offers a wide range of tradable assets across multiple financial markets, including forex, stocks, indices, commodities and cryptocurrencies. Having been regulated by various top-tier authorities, the company serves in the UK under the supervision of the FCA. With a diverse range of trading platforms, flexible account types, and payment options, eToro is extremely popular among traders for copy trading services. The broker allows you to either copy trades automatically or follow trading signals manually.
With more than ten years of operations, Pepperstone has earned a well-deserving second spot in our best copy trading brokers list. The company focuses on providing traders with a reliable and transparent trading environment. Although the broker doesn’t have in-house copy trading solutions, it collaborates with third-party providers like ZuluTrade, MyFxBook, and MQL5 to provide copy trading services.
In compliance with numerous regulatory agencies across the globe, including the United Kingdom’s FCA, Australia’s ASIC, and others, the company has emerged as a favourite option for trading a diverse range of financial markets, such as forex, indices, commodities, stocks, and ETFs.
Skilling is also well known for its social trading services. Clients can use the cTrader platform for copy trading at Skilling. The company makes it simple for copy traders to locate the most profitable accounts to replicate while filtering results according to clients’ preferred criteria. Clients can also mirror more than a thousand expert trading methods on Skilling cTrader. With advanced risk management features and lightning-fast trade execution, the platform enables you to copy trades across various asset classes, including stocks, FX, and indices. It holds regulations from multiple regulatory authorities, including FCA, CySEC and the FSA.
How to Choose the Best Social Trading Platform?
Besides choosing the type of social trading, selecting the best social trading platform is equally important. Since the market is almost full of good and bad brokers providing social trading services, here are a few critical checkpoints you must consider before signing up with any social trading platform.
Regulations offer a sense of security when investing your hard-earned money with a broker. At least you know you have legal protection in case the company mistreats you. Therefore, ensure that your social trading platform holds a licence from a reputable regulatory body, preferably within your home country. For instance, clients in the UK should check if their prospective social trading firm has FCA regulations.
Your broker might not be supporting the tradable instruments you wish to trade or copy. For example, some brokers do not deal in cryptocurrencies, while others do not support futures and options trading. Therefore, it is worth checking the available markets with your prospective social trading platform before making a final decision.
When registered with a social trading platform, you are most likely to incur both trading fees (spreads, commissions) and non-trading fees (deposit/withdrawal fee & inactivity fee). For example, you must fund your account to start copying trades, and the payment method you select might have some associated fee. Similarly, you will incur spreads and commission on positions copied. Sometimes a subscription fee is also payable for your profitable trades. Hence, checking the pricing structure of your social trading platform can help you compare two or more alternatives.
Customer support is integral to a company’s successful operations. Reputable platforms pay special attention to facilitate their clients. Try communicating with the customer support of the social trading platform and check if they address your queries and concerns timely. Also, confirm if it offers multilingual support. There is no need to sign up with a social trading platform that doesn’t pay any heed to your issues. A forum with poor customer support is likely to make you suffer in other aspects of trading as well.
Checking the available payment methods is also crucial. While some brokers offer multiple payment options, others only support limited methods for deposits and withdrawals. For instance, if you wish to fund your account using a debit card or credit card, but your social trading platform only accepts bank transfers, you will have trouble adding funds to your account. Other variables, including the time required to process funds transfers and the applicable transaction fee for each payment method, also need to be considered.
What Assets Can You Use for Social Trading?
Social trading platforms typically allow you to trade various assets across supported financial markets, such as Forex, commodities, shares, indices, and cryptocurrencies. However, you don’t know the traders’ trading strategies you will follow.
Some traders might invest in various financial instruments, including those that least appeal to you. On the other hand, you may end up following two different traders who are trading USD/GBP or gold simultaneously, which impacts your diversity options.
Furthermore, allocating your investment between different types of traders, such as forex traders, stock traders, commodity traders, and cryptocurrency traders, can help diversify your investment portfolio. That’s how you can not only copy forex traders but have your account replicating the trades of stock traders or cryptocurrency traders. Below is a list of several asset classes you might want to trade.
The term “Foreign Exchange” (abbreviated as “Forex”) refers to a market in which investors can buy and sell different currencies. For example, you can exchange your currency for Dollars, Pounds, Euros, etc.
In terms of trade volume, it is the largest market in the world. The idea underlying currency trading is that the value of a currency can rise and fall in response to a wide range of economic circumstances. Therefore, currency rate fluctuations allow traders to speculate and find tradable opportunities. While there is a wide range of currency pairs available, the major currency pairs include GBP/USD, EUR/USD, AUD/USD, NZD/USD, USD/JPY, USD/CHF, and USD/CAD.
Buying and selling stocks involves investing in a company’s shares like Apple, Microsoft, Samsung, Tesla, etc. You own a piece of a company if you hold a certain number of shares in it. Investment in stocks brings returns in the form of dividends and price appreciation of a share’s value over the years.
Investment in indices allows you to simultaneously gain exposure to the overall economy and a particular industry. Stocks in an index are aggregated to provide a broader picture of the market’s performance. The S&P500 is a good example of a stock market index. Market players use the S&P 500 index to understand how the stock market is doing. A variety of indices focus on different sectors, such as the Russell 2000 Index, which focuses on small stocks.
Commodities include items we frequently use in our daily life, such as grains, oil, gold, silver, etc. Since commodity prices are less affected than stocks in response to major economic releases, they serve as a good investment source for diversifying your investment portfolio. You can trade commodities using CFDs, ETFs, or future contracts.
Cryptocurrencies have become increasingly popular over the past 10 years. Due to their highly volatile nature, digital currencies allow investors to speculate over their prices and find countless trading opportunities. While Bitcoin (BTC) was the first cryptocurrency introduced in the market, thousands of digital currencies now exist.
Pros and Cons Of Social Trading
- Access to Reliable Information
- Learn from other trades while you earn
- Interact with like-minded people
- Effective source of passive income.
- No need of profound market knowledge to get started
- Saves time
- Limits your learning abilities
- Past performance doesn’t necessarily reflect in future
- Rely on the traders’ performance
How To Start Copy Trading in 4 Steps
Getting started with copy trading isn’t very difficult. All you need is to follow the below four steps to have your account ready to replicate trades.
1) Choose a Broker & Create your Account
You need to select a broker to open a trading account with it. We’ve already discussed the critical factors you must consider while finding a reliable broker.
2) Make a Deposit
A live trading account should also have some funds you may use to initiate a trading position. Therefore, fund your trading account. You will likely find multiple payment methods available with your broker for deposits. Select the one that fits your needs and budget.
3) Select a Trader
This might be the most crucial factor that you should proceed with care. You might want to consider various elements when selecting a trader, such as the number of followers, success ratio, managed funds portfolio, risk tolerance level, etc.
4) Start Copy Trading
Once you are done with all of the three steps listed above, you are good to start copy trading. Since copy trading is an automatic procedure, you don’t need to watch your account all the time. When a trader opens a position in their account, it also gets initiated in your trading account.
How to Copy Forex Trades
Now that you are familiar with the copy trading details, you might wonder how to get started. Here is a step-by-step guide on how to copy forex trades in your account.
Step 1: Choose whom you wish to copy
The first step is to figure out whom you want to learn from and follow in their footsteps. Remember that your trading success or failure solely depends on your leader’s performance. Make sure to use the filter to its full potential during the selection process. For instance, you could filter out a trader’s performance over the last 12 months. You might also assess their risk profile and profitability ratio.
Step 2: Decide on your budget
When copying a trader, you’ll need a certain amount of money in your account. It is vital to figure out how much money you have to invest. Social trading platforms like eToro allow you to clone a portfolio with as little as $200. However, depending upon the available budget, you may wish to invest more or less.
Step 3: Allocate your funds
Now is the time to allocate your funds and start copying trades from your selected strategy provider into your account. Just indicate the amount you wish to assign and click the ‘Copy’ button.
Another consideration is whether you wish to clone their current portfolio or would like to mirror all of their trades. Mark your confirmation by clicking the check box if you plan to copy all the trades.
Remember, you can stop following your selected trader anytime, and the allocated funds will be returned to your cash account.
Best Traders to Copy from
While there are numerous traders to copy from, let us enlist the top 3 that you might like to follow. Please note that this is not an investment advice, your capital is at risk when investing.
Jay Edward Smith
Jay Edwards is a 31-year-old trader from the UK. With a return on equity of 24.61% over the past twelve months, he has been the most successful trader on eToro. Almost 12,000+ traders follow him for copy trading. Edward is an ex-sports manager, a professional gamer, and a crypto enthusiast and has been into trading for many years. He has profound market knowledge and extensive trading experience across multiple financial markets, including Forex, stocks, indices, cryptos, and ETFs.
Having managed an assets portfolio of more than $5 million, the trader had a success rate of 35%+ in 2020. Further, he generated an unprecedented return of 52%+ in 2021. His investment portfolio comprises 47%+ stocks, 23%+ indices, 19%+ cryptocurrencies, and 0.08% forex. He suggests a minimum investment between $500 and $2000 and a copy trading tenure of at least two years for best results.
Olivier Jean Andre Danvel
Olivier is a french trader with a return of 6%+ over the previous year. He has also managed more than $5 million in assets on eToro, employing a low-risk trading approach to generate a minimum of 1% monthly.
Olivier has more than two decades of experience working as a fund manager and is known to be one of the most successful traders, specifically in currency trading. With interest in financial literature and investment news, he focuses on technical analysis to find market trends and trading opportunities.
He accumulated a return on investment of 8%+ in 2019. His investment portfolio remained positive by 2.5+% for the first half of the year 2020.
Olivier Jean’s investment portfolio includes 84%+ currencies, 10%+ commodities, 4% indices, and cryptocurrencies. With a level 2 risk profile, he suggests a minimum investment of $500 for copy trading.
A British trader, Heloise Greeff, ranks number 3 in our list of the finest traders for copy trading. She has virtually all her money invested in stocks and over 1,500 different equities in her portfolio. Her ROI remained 20% in 2019, while she made 17%+ profits in the first six months of 2021.
Heloise Greeff is a consultant, researcher and trader by profession. She holds a Master’s degree in Business Administration from the University of Oxford.
Her primary areas of focus in the trading world include pharmaceuticals and machine learning, technologies, US indices, and FX technical analysis. Greeff’s investment portfolio includes 98% stocks, while the rest comprises commodities, indices, currencies, and ETFs.
Her lowest suggested copy trading investment is $1000. Stocks including Microsoft, Mastercard, and Visa are among the most significant investments in her trading career.
Is Social Trading Legal?
Social trading is legal if your respective broker complies with all applicable laws and regulations. Whether you copy other traders’ positions or trade independently, investment in the financial markets through a regulated broker legalises your account and its transactions. Even countries with rigid regulatory frameworks like India don’t restrict clients from social trading. It becomes offensive only when you or your financial intermediary breaches the code of conduct. For instance, providing investment advice when you are not qualified to do so or a broker operates without permission of a concerned regulatory body, implying if it has been authorised.
Is Social Trading a good idea for Newbie Traders?
Well, social trading can have both positive and negative impacts on newbies. While it allows beginners to speed up their learning process by watching other traders, it can limit the element of self-practice and instigate a sense of dependency.
Newbie social traders can also become overconfident, assuming the market is too friendly to generate higher returns. On the other hand, they might lose confidence after witnessing a disastrous trading spell for a trader who has been trading in the industry for years.
However, it is worth interacting with other traders and learning from their mistakes. Secondly, it saves newbies a lot of time and money they might lose while exploring the market from the scratch.
Are social Trading Platforms Safe?
There are no separate criteria for assessing the safety of a social trading platform. All those factors you must ensure while opening a trading account with a broker also apply to the social trading service providers. It should be a well-regulated and reputable platform.
However, since social trading isn’t limited to signing up with regulated or non-regulated platforms, it involves relatively higher risk. For instance, individual traders you follow might not care if you win or lose. They are more likely to be concerned with their commission, unlike regulated brokerage firms, which are required to act in the best interest of investors and maintain fair practices.
Moreover, investments with regulated firms offering social trading services often have protection under different financial services compensation schemes.
Copy Trading Vs Social Trading: What’s The difference?
Copy trading is a single element, while social trading is a broader term. When you copy trade, you effectively buy every decision a leader makes. For example, you must hold your positions if he/she decides to go long and vice versa.
Copy trading is much less demanding on your time and attention than social trading. Many copy trading systems include a list of the most successful traders and information about their specific risk profiles and past performance. You might choose a few traders to replicate, take your hands off, and sit back watching trades being copied to your account.
On the other hand, social trading allows you to make decisions based on knowledge gained from veteran traders instead of just copying positions blindly. Since it’s up to you whether or not to make a trade, this gives you considerable control over managing your investments and trades. However, it’s possible to make some mistakes, especially for newbies. That’s because you might make a mistake in reading or understanding the analysis.
Final Thoughts on Social Trading
In social trading, every decision you make is yours. While there is a greater learning curve, you have more control over the risks you incur and are ultimately responsible for the outcomes of your transactions.
If you want complete control over your account, you might like to go for social trading. On the other hand, if staying in a passive mode and imitating trades of other veteran traders without your interference doesn’t bother you, copy trading could be the choice.
What do Reddit & Quora Users Say About Social Trading Brokers 2023
People hold mixed opinions about signing up with any social trading broker. According to a member on Reddit, the only people who would use social trading platforms are those who have no idea what they’re doing and are pushing for terrible companies in the hope of making easy profits.
Some people also seemed to be praising eToro not for its social trading services but as a full brokerage firm. Another member shared his experience with eToro concerning stock trading. He looked pretty satisfied with the company’s services though he didn’t like eToro’s pricing structure.
We didn’t encounter threads mentioning other social trading platforms, except for eToro. Maybe that’s because people are not so familiar with social trading as yet.
Unlike Reddit, the Quora community seemed to be well-versed with the concept of social trading. People have not only been actively debating about what platforms are best for social trading, but they also seem to quote both pros and cons of social trading.
While most users quoted eToro as the best option for social trading, a few denounced it for its higher pricing structure and limited customer support. We also saw people recommending third-party social trading service providers like ZuluTrade, MyFxBook, etc.
People have also appreciated the evolution of social trading and praised the latest social trading tools (OpenBook, Stock Twits, Currensee) that allow traders to interact without involving brokerage firms.
Copy trading is not the same as social trading. It’s critical to distinguish between the two terms. To simplify the decision-making process, think about your long-term goals. Don’t be afraid to try something new. It’s essential to understand why you make the decisions you do. Decide on a course of action based on your personal preferences and needs. Further, you must understand how social trading networks measure trading performance since it can impact you being a trade copier.
Further, there are different types of social trading that we’ve discussed in the article. Before starting, you must consider both pros and cons of social trading and decide which social trading type appeals to you more. Besides selecting the best copy traders to follow, you might also want to diversify your portfolio with social trading. Therefore, learning how to create a balanced investment portfolio and what factors you must consider while selecting a leader is essential. Moreover, do not forget to check third-party platforms like Reddit and Quora to seek public opinion and recommendations.
In this guide, we tried to cover every aspect of social trading and help you understand the difference between copy trading and social trading. Moreover, we also listed the best social trading platforms and traders to follow for copy trading and explained what to look for when selecting the best social trading platform or a copy leader. However, we advise you to conduct your own research and signup with any of the brokers listed above at your discretion.
Q & A
Social trading refers to an act of learning from professional and amateur traders through observation, interaction and practice. The main goal is to mimic their moves in the currency or stock market through “copy trading” or “mirror trading.”
The best social trading broker is the one who provides clients with enough resources to either copy or mirror trades. It also enables clients to interact with other professional traders to share their experiences and feedback. All our listed brokers are the best social trading brokers we’ve filtered after scrutinising several dozens of brokers.
Yes! eToro is a leading social trading platform serving both retail and professional clients for over a decade.
Copy trading is a subset of social trading. It appears the same as social trading but certainly has some differences. For example, when you copy trades of other professional traders, you buy their every move whether you like it or not. However, social trading is a broader subject; it allows you to copy others’ trading strategies and risk management procedures in your own way. That means you have complete control over your trading decisions, even though you copy a trading idea from someone else.
Social trading tools help you to interact and replicate others’ trades. All other listed brokers offer the best in-house and third-party social trading tools to make your social trading experience much more exciting.
Copy trading refers to automatically replicating a preselected trader’s actions by opening and managing identical positions.
You sign up with a broker offering a copy trading service, select a trader of your choice, define your copy trading parameters and start replicating his trades. In other words, when you find a trader whose strategies you like, you may set the amount you want to spend and have your account automatically mimic their trades in real-time.
All our listed brokers are the best copy trading platforms. However, eToro ranks at the top of the list.
The best copy trading app should have all the necessary features for a meaningful copy trading experience. Our listed brokers offer the best copy trading apps. Moreover, they also allow you to use third-party social trading apps like MyFxBook, ZuluTrade, DupliTrade, etc.
No, most social trading platforms do not charge an additional fee on copy trading. However, if you follow individual traders, they might ask for a commission on successful trades.
MetaTrader 4’s copy trading service makes it possible to automatically replicate the trades made by other users. It allows you access to the interface where many profitable traders make their trades available to the public for free or at a small price.
Yes! eToro allows copy trading. In fact, eToro invented the idea of “Copy Trading,” where users may automatically follow the trades of other traders they select.