What are social trading and copy trading?

6 min read

What are social trading and copy trading?

Social trading is a form of investment that allows anyone to observe the trading behavior of an investor or an expert trader who wants to share his transactional movements.

The objective of this is to follow your investment strategies using copy trading or mirror trading. Doing this requires little or the slightest knowledge of the financial markets.

Investors or expert traders do this as they earn a percentage of the profits of those who copied their investment and made a profit.

This requires a minimum knowledge of financial markets; but you must do is evaluate the performance of the investor’s profile to determine if it is a safe investor or not

Oh, remember that if you use copy trading or mirror trading, all the transactions made by that merchant will be copied and you must face any losses that exist, this is not a 100% safe method to make money since no matter how knowledgeable about the market you can always see error

One of the first social trading platforms was eToro in 2010, followed by Wikifolio in 2012. Europe-based NAGA Trader, listed on Frankfurt Stock Exchange since 2017, claims more than EUR 27 billion was traded on its platform in the second half of 2019.

 What are the advantages and disadvantages of copy trading?

There are many risks when it comes to copy trading, some advantages and disadvantages would be:

Pros:

-Allows individual users without much experience in the markets to benefit from the knowledge accumulated over years and decades by more experienced traders.

-It doesn’t take much time. Especially if you copy traders with medium-long term strategies.

-It allows a wide diversification: copy the operators that operate in different markets, with different strategies.

– Mastering copy-trading can allow you to better understand the markets and at the same time get a return on your investments and acquire your own fan base if that interests you.

Cons:

-Many novice traders

-Traders who use “black hat” techniques. Not all merchants are safe and trustworthy just because they have a large following. Some of them simply found ways to improve their rankings through questionable actions, such as manually copying the activity of other good traders or creating multiple accounts and sticking with the one that luckily worked best.

-Unrealistic expectations of users / investors and lack of education leading to poor decisions and investments. Like any other investment, you won’t get rich overnight. Copy Trading involves risks, including loss of capital, even when following and / or copying or replicating the best traders.

Why is social trading so important for the industry?

Because it is so important for the industry as this helps the growth of users trading cryptocurrencies this helps because the more users the more profit is generated. With so many users entering that they do not know the least one option to enter this market and make a profit is social trading, this is one way in which they can start investing in the world of cryptocurrencies.

These people who set up their transactions to be copied share information about events and even share ideas. You can also ask them questions about the procedures they carry out.

Although this brings many good things for the industry, it also brings bad things since as it is not very regulated who can post their businesses, people who are very new to this could inexpertly advise what would create a bad experience for those new users who are just starting in this world.

For this reason, platforms must adjust their measures very well so that not everyone can recommend what to invest in to others so that it does not generate mistrust within the industry.

Knowing they’re using a safe social platform will give investors and leaders more confidence and will help to boost the reputation of the cryptocurrency sector. 

What’s hindering exchanges from becoming more innovative with social trading?

There are still things to improve with respect to copy trading and social trading. Only some trading platforms have a copy exchange function built in, but this may change as all platforms can apply this innovative idea without any restrictions.

Something that this model lacks would be a way to prevent ideas from being stolen between platforms and someone from platform A to publish the same ideas in proforma B. New platforms that apply social trading should be careful about that.

However, this would have to place a liability on the platforms which have social trading to ensure that they do not endanger the continued growth of the cryptocurrency community. They must impose rules so that these investors do not deceive others so that they do not generate mistrust in the platform

In the Future, investors would be more likely to back crypto exchanges that can prove themselves to be innovative. Once the crypto community practices and complies with similar industry standards as its traditional counterparts, it will gain more respect from the financial community, and exchanges can be creative without any fear.