A New Concept in the World of Forex Trading – Social Trading Networks
Social trading has become very popular in the world of Forex, as it is a way of making experienced traders work for you and learn for free. For beginners, it is the perfect way to start a Forex career, and is also a great way to trade if time is limited and spending hours sat analyzing charts is not how you want to spend the day. Millions of traders are choosing to join social investment networks and tap into the wisdom of a crowd.
No longer are strategies kept under lock and key, but are shared. Traders and signal providers providing the information, earn commission according to the number of followers and copiers they have, or by the number of deals that are copied. Through social trading networks, investors can watch what other more experienced traders are doing, as well as ask them questions, read their posts and discussions. Traders can choose to copy all or just one of the trades.
Are social trading networks just another form of Facebook?
Facebook connects you with family and friends anytime and anywhere. However, social trading platforms tend to concentrate on trading, rather than what a person ate for dinner, or to share the latest ‘in-joke’. Much like Facebook, a profile will contain a lot of personal information, but it will be about a person as a trader, not the color of their hair, or the type of relationship currently being enjoyed.
Most social trading platforms allow you to see an investor’s portfolio, and check out how successful they have been. You will also be able to see how much money they’ve made, and whether they prefer to invest in a particular niche. Through a social trading network you can see what other traders are doing and the investment choices they are making. Social trading networks are used to share vital information and to help traders make informed decisions.
A word of warning, however. Do you believe everything you read on Facebook? Most definitely not! Likewise, social network traders should be aware that not everything is true. Data can be misinterpreted, and there are people who lie for their own personal gain. Always check a trader’s profile before you listen to their advice.
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Are social trading networks too good to be true?
Well the answer is yes and no. The idea is brilliant in principle, and many of the bumps have been ironed out with software upgrades. However, the human element is not that easy to control, but it can be filtered. The best social trading platforms have very advanced tools that can be used for filtering traders, according to different aspects of trading style, results and to help choose the safest ones. We should, however, point out that 100% security is not guaranteed. Not all traders are honest. There will always be unscrupulous traders trying to manipulate and cheat their way to big bucks. The good news is there are ways you can spot this type of shark.
- If the numbers look too good to be true, they probably are
- Keep an eye out for scaled out trades – losing positions accompanied with old dates still open is not a positive sign
- Don’t worry yourself with traders who don’t use stop loss at all
- Look for experienced traders – 1 years trading experience should be the minimum requirement
- Good traders to look for are those that participate in discussion, provide feedback, and talk about their strategies, and that includes being open about losses
- It’s a good idea to set your own stop losses, unless you are sure about the trader being followed
- Steady gains in the profit and loss charts show a trader is consistent in their approach
- Results that show in your own demo account are better to use as a criteria for choosing a trader, rather than a traders stats pages
- If you’re planning to follow a trader, take the opportunity to talk with them
Social trading networks – A brief history
- 2000s – This is when the first trade copying companies were started and the service was initially called mirror trading.
- 2006 – This year saw the launch of Zulu Trade and offered a better system and gave users the chance to better control risk parameters
- 2008 – The Forex market became more popular following the worldwide economic crisis
- 2009 – Social trading was integrated into the systems of many brokers because of the previously untapped market of inexperienced traders
- 2011 – A new benchmark was introduced by Etoro, called Copy Trade, opening up the Forex market to a huge audience, and letting newbies tap into the wisdom of experienced traders
- 2012/13 – The world of social trading networks continues to improve with new brokers coming on board
Social trading networks are great if you can find the right platform and traders to follow. Start with a demo account and put all you’ve learnt into practice and you’ll be heading in the right direction.