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Getting started in financial trading can be both alluring and overwhelming. With the myriad of different trading strategies, markets, terms, indicators, calculations and sources of information, it’s understandable why social trading has become a very popular method for investors and traders to get involved with in financial market trading.

What is social trading?

Social trading is a type of financial trading in which the investors can emulate the strategies and executed trades of more experienced, professional and successful traders.

Of course, nothing fully compensates for a trader doing their own due diligence and research, not to mention fundamental analysis and technical analysis. However, for some traders replicating the actions of better individuals is a preferred strategy.

Platforms that enable social trading give newer traders (or experienced ones who simply choose to stick to the social trading method) an opportunity to both interact with and learn from others. This network functions both as an educational tool and an opportunity to actually trade.

Social trading can now be employed in just about every financial market and with just about any financial asset including shares, commodities, foreign currencies and cryptocurrencies.

How does it work?

Social trading platforms are based on simple and easy access to markets. As technology evolves, the platforms available have only become better and better for social traders.

Certain programs even offer features that are designed specifically to allow you to copy a trade of another. You can follow or subscribe to an individual’s channel by which you can then copy their trades if you so choose. (This can even be programmed to occur automatically.) Or you can interact with traders directly, swapping strategies and ideas.

Types of foreign exchange autotrading

There are two types of foreign exchange autotrading.

Why would other traders share their 'secrets'?

The more experienced traders out there stand to gain from sharing their trading tactics and decisions. The social trading platforms often feature top traders based on their level of success, popularity in being followed and emulated, and their relevant status as an experienced trader. This prestige is alluring to many seasoned traders.

Does social trading work?

This forex automated trading system conducts the entire process automatically, from signal identification to execution of the trades. To that end, trading strategies is still an important and integral component as it will determine how a software algorithm is programmed to act. Once set though, everything else, including stops and sell orders, will be carried out without any intervention necessary from the trader.

Can automated trading systems ever be wrong?

In short, yes it does. Or, more accurately, yes it can.

As mentioned before, nothing beats curating a strong and comprehensive understanding of trading risk management strategies, indicators and trading methods. Social trading offers a low barrier to entry for newcomers but that doesn’t mean it’s all risk-free.

All traders, no matter how successful, incur losses from time to time. Being completely and wholly reliant on the decision of someone else means you’re at the mercy of their own strategies and decisions. And as sophisticated as their tools may be and as strong as their indicators may appear, they are after all human too.

Additionally, the ease with which social trading is performed robs newer traders of the opportunity to break their teeth and really get to understand how to trade well.

Trading strategies and risk management plans need to reflect the objectives, capital reserves, and risk tolerance of the individual. Merely copying another’s strategy means you are taking into account their trading preferences, not your own.

So, is social trading profitable? Yes it can be. It can also not be profitable. Social trading does not absolve you of the responsibility to use your own discretion to make smart financial decisions.

On the flip side, it’s important not to ignore the benefits of social trading. The inclusive community of social trading platforms helps new traders learn directly from and interact directly with other traders. Over time and with active engagement, rookie traders can gain a great deal of understanding about trading and strategies, not to mention experience.

What are the risks of social trading?

In addition to the normal risks of any financial trading--including market volatility and unpredictability--social trading has some additional risks.

Naturally this strategy means that you need to do less research and strategising than you otherwise may have.

This can lead to problems down the road if you find yourself in a sticky situation, such as your losses are intolerable to you but within the risk management strategy of the trader you’re copying.

Additionally, you have no evidence or record of the analysis or research of the trading party you’re copying other than the accessible historical records of their previous trades.

A combination of classic technical analysis with involvement in social trading networks will help you determine how or when to get involved and mimic a trade from another party.

An important component of trying to spot trends and opportunities in the market is a market sentiment indicator. These indicators help identify what other traders are thinking, feeling and doing. This can be difficult to measure and even more difficult to understand, but if you manage to accurately gauge the general thought process and intentions of the market you can take advantage of it.

Using MetaTrader 4 platform for social trading

MetaTrader 4 is one of the most popular platforms for trading in general across the globe. Our market leading pricing and execution, combined with this phenomenal platform, offers you a truly unparalleled trading experience.

Why do we mention this? Because MetaTrader 4 actually offers a feature for analysing the sentiment of the market through historical data and past trading performances. When you use MetaTrader 4 to enhance your understanding of not only the current market conditions but also the current trader sentiment, you’ll be far better positioned for not just social trading but trading in general.

Ready to begin social trading?

If you’re ready to begin social trading, that’s great! Because we’re ready to help.

Global Prime is completely owned and operated by Australian trading experts who are committed to helping both new and old-hat traders access an unrivalled trading experience.

We’re always available to chat about all things trading, so whether you prefer picking up the phone, shooting through an email, getting involved in our Discord forum or live chat online you can do it all with Global Prime.