In this guide to social trading you will find all the information you need to fully understand this investment strategy. In addition, we include a list of the best online social trading brokers that has been prepared by our team of trading experts.
Imagine a social network of investors . In other words, a platform where the best traders were and you could follow them. Now go a little further and imagine that you can invest and copy the operations that these investors carry out. That is doing social trading – or social trading -. It seems like a foolproof method, right?
It is true that you can be successful in investing with this innovative modality, but don't forget that trading always carries risk . You can make money but also lose it. Despite what the ads promise you, the truth is that this type of trading, also known as mirror trading or copy trading, is far from infallible. Let's see how social trading works and draw your own conclusions.
How does Social Trading work?
First of all, you have to open an account on a platform that allows copy trading and enter the minimum amount of money that is required of you. This entails choosing an online broker , and, as always, we recommend that you bet on a safe, regulated and trustworthy one. It's easy: follow the verification guidelines that we indicate or, better yet, choose one of the social trading brokers that we propose. Everything that appears on OkBrokers has passed the filter of our experts . They have licenses granted by important international organizations.
The next step is to search among the available traders and mark the trader from which you want to replicate the operations. You can complicate everything you want, although the easiest thing is to see in the ranking of traders which ones are obtaining the most profitability. You have the option to choose several and you can track automatically, or manually copy the movements that interest you the most.
Can I choose a trader and copy his trades automatically ? As simple as that? It sounds too beautiful to be true and the truth is … that the beautiful sometimes is not so beautiful if we look deeply into the details. But the question you are asking yourself by now we assume is …
Why are there traders who let themselves be copied?
The answer is direct, clear and simple: because online brokers pay money to the most copied traders. It is a relationship in which the trader wins because they give him money and the online broker also because he has the best traders and this will mean that more clients arrive. It is a relationship based on mutual benefit.
In theory, social trading is based on the fact that, by offering commissions to the most followed traders, they will prefer to operate on these types of platforms since they offer them extra profits . A priori this seems to work theoretically, but our experience is that it is not always possible to copy trades efficiently.
Does social trading work?
Well sometimes yes, but not always. With this we want to make one thing clear: social trading is not infallible . It is simply one more trading technique and it has its pros and cons. If you think that you can open an account on one of these social investment platforms and simply automate operations of winning traders to collect profits at the end of the month, you will most likely not get the expected results.
There are many things that can turn out not as well as we hope. For example, the fact that a trader is “successful” is measured in the long term . Anyone can carry out trades that do not evolve as expected, even the most experienced traders.
Second, when dealing with very short duration operations, the fact that there is a difference in the execution time between the operation to be followed (performed by the trader we are following) and ours can result in diametrically opposite results if the markets they experience a great fluctuation. This especially affects markets such as Forex .
So you shouldn't try this trading technique? Yes, you can do it, and also with good results . All we want to do is help you maintain realistic expectations of what it is and what you can achieve through social trading.
Is copytrading the same as social trading?
As far as trading operations are concerned, they are the same. Perhaps an almost imperceptible differentiation can be made. Social trading platforms are based on traders sharing their operations as if it were a social network. Those of copytrading in principle try to make it easier for investors to contact traders.
In reality, the line that separates (or separated) social trading from copytrading has gradually blurred and today the two terms are used interchangeably to refer to those platforms that allow copying the operations of other traders.
Social trading and automatic trading
As we have already mentioned, copy trading or social trading can be done in various ways. One can follow a number of traders and manually copy some or all of their trades. There is also the option to copy all the operations of that or those traders automatically.
That said, there are more automated trading modalities worth mentioning that don't fit into the copy trading box. One of them is performed by Forex robots. It basically consists of performing operations in the currency market automatically, which are based on calculations and predictions made by specialized software .
Advantages of Social Trading
It allows people who do not have great knowledge or experience in the investment sector to operate.
You get financial advice, which obviously does not have an interest behind it like that of a traditional investment entity.
It is, logically, a perfect way to keep up to date on market movements and the economic calendar.
You can diversify investments, replicating the best traders in each market.
It can serve as a basis for learning. By copying expert traders we can identify strategies that we can adapt to our social investments.
Disadvantages of social trading
The copy of the movements made by the trader you are following does not occur immediately, therefore, there is a difference in time that, for example, in the Forex market , can directly lead to failure in the operation. .
In many of the social trading platforms they force you to operate with the platform's own broker. In fact, it is common for the platform's source of income to be the commissions charged by that online broker, so these are usually very high.
In short, trading on social trading platforms is expensive and sometimes inefficient.
Conclusion on social trading
It is a form of trading, also known as copy trading , in which traders can copy the operations of experienced traders, who receive a commission for being “followed”. Although it is not a foolproof strategy when it comes to making money, it can be useful for retail investors who are not very experienced or who wish to operate in markets and assets with which they are not particularly familiar.
Social Trading Broker
Best copytrading brokers
If you want to try it, we recommend doing it at one of the recommended brokers that appear in the table at the top of this page. These social trading brokers have been carefully analyzed by our team of experts and they are platforms with a long history that are also regulated by international organizations such as the Financial Conduct Authority, which ensures that your operations are carried out safely.
We would like to end with a risk warning: remember that trading carries the risk of capital loss and that most retail investors lose money. This is largely due to a lack of knowledge and experience necessary to study financial markets or to carry out technical and fundamental analyzes of the chosen investment instruments.