Today, trading has changed. Gone are the days when one had to engage a remisier to advise a potential investor or meticulously keep oneself updated on the ever-changing market trends. Together with the internet boom, Social Trading has changed the way people trade. An industry that used to be only reserved for big institutions and experienced professionals now has opened up the playing field for small scale, independent online traders.
Over the past few years, Social Trading has disrupted the traditional trading system by bringing down the otherwise high entry barriers involved in becoming a professional trader. Not only has it disrupted the flow of trading, but it also has garnered the attention of the younger generation. With its simplified way of trading and the ease of mirror trading, it has piqued the interest of the baby boomers.
Be that as it may, change, like everything else, always has its pro and cons. There will always be some that are eager and willing to make the change, whereas some may be hesitant or even resist the change. So then the question remains, does Social Trading do more good than harm to a potential investor?
Closing the Gap with Social Trading
To some extent, the trading industry is complicated. Though the act of trading itself is rather simple, the administration by a myriad network of regulation, oversight and paperwork over time, has made the process rather complex. With this, market traders have always needed to be acutely aware of macroeconomic trends and company news. Because of that, stock, commodity and currency trading have long been the preserve of dedicated professionals.
However, in today’s social media-driven times – especially among the younger generation, the marrying of the lucrative world of trading and social media, presents newfound opportunities for both new investors and seasoned traders. With its easy to navigate and master “characteristics”, social trading is gaining recognition as an integral part of many well-diversified portfolios.
Today, with the above scenario in place. Social Trading companies the likes of eToro, are helping new and potential investors like you and me by simplifying terms and conditions of the trading world. With the ease of social media, we are seeing the narrowing gap between the complicated trading industries. Social trading makes trading more shareable, connectable and responsible, and the fact that it allows more people who otherwise had no opportunity to invest in financial markets in the past makes social trading more compelling and makes trading inclusive.
Also, with online social communities of traders offering support where necessary to educate their audiences, especially beginners, lines that once distinguished the traders and online communities are being blurred out – making trading more accessible to the larger public.
Advantages of Social Trading
One of the advantages of social trading is that it creates a win-win situation for both experienced and novice trader, working on the motto of “Together we do better”. If one allows traders to interact, profitability should eventually align with the best. The logical reasoning behind social trading is, if you’d want to be better at something, it would be better to learn from someone who’s experienced.
Therefore, traders who have a proven track record in investing and profitable strategy can assist traders who follow them, in turn giving them a chance to gain from their experience and success. Now, novice traders have the chance to make money in binary options, though they have little or no trading skills. Apart from that, experienced investors are capitalising on social trading to diversify their risks and boost their profits.
This creates a bridge between the old world of investing and the new, helping investors navigate and benefit from the social aspect and CopyTrader feature.
Does It Bring More Harm Than Good?
That being said, it’s not all positive. Similarly to traditional trading, understanding risk and how it affects the markets can determine one’s profit or loss. With the help of CopyTrader – a system which allows newbies Social Traders to copy more experienced Social Traders – it is still equally important that traders understand that in trading of any kind, there are pitfalls one should be aware of.
If one is thinking of embarking into Social Trading, it’s always important to remind oneself to never be an ‘overeager’ Social Trader. It is totally understandable for a newbie Social Trader to get caught up in the excitement of making extra income, especially after a series of successful trades. The idea that ‘everyone is doing it’ attitude, may prove detrimental in the long run.
When exploring any Social Trading platforms, best to stay focused by outlining one’s long term financial goals. Specifically trading strategies that you believe that will be successful in your approach, to ensure your long term and more importantly consistent profit.
One way for you to do so, would be realising that not all loss is a loss. Loss can also be a normal process, leading the way to profit. As an example, an experienced trader copied by you who may have more experience in the market than a newbie trader is not immune to losses. Hence, it’s important to always keep a realistic expectation and understanding of what Social Trading offers.
This will allow you to stay on course with your own long term plan rather than just getting caught up in the moment.
Another way, is to continuously keep yourself updated in all the markets, similarly to traditional trading. Trading in financial markets is subject to individual risk appetite and preference. There are many factors to risk. When one is talking about risk, it has many factors to it. The most common risk factors that one has to consider are, market risk and liquidity risk.
Market risk, refers to the capacity for one’s trade, resulting in losses due to unfavourable price moments, which then affects the whole market. Factors that can result in market risk are, stock prices, interest rates, foreign exchange rates and commodity prices. However, it is important to note any movement of the following can exert major pressure.
The other common risk in trading is, liquidity risk. In trade, this means that one forced to trade an asset below the market value, and at a worse price than one anticipated. For example, an investor decides to sell an illiquid stock, however he is struggling to buy a buyer, therefore he then has to sell his stock for less than its current market value.
Each market has its own risks associated with it and depends on what the trader prefers. So it is important to really study the market trends and do your own research.
So albeit, after factoring in all considerations, the fact is that the world is moving forward. Furthermore, with people actively trying to find ways to convert their investment to gain more wealth, together with the digital and internet boom, where more people have direct access to information and resources, Social Trading will just keep getting bigger and better and investing will continue to become easier and more affordable for everyone.