Social (or Copy) trading is a relatively recent phenomenon which is rapidly becoming very popular. This is due to the ease with which people without a financial trading background can can make trades without having to engage in lengthy research and learning. Social trading will enable you to copy others’ commodities, forex trades, and more.
How Does It Work?
There are varying definitions for the term social trading, but in essence all social trading platforms allow the new user to copy the trades of people who have been in the game for a while (known as Gurus).
The most popular method of social trading is whereby you select a trader to copy, assign a level of funds to copying that trader’s positions, then whenever that trader opens a new position you will have the same position opened.
How this works across different platforms varies; some will allow you to adjust the actual cash amounts applicable to each trade, others may only allow you to allocate a ‘pot’ to the trader, but not define an amount of cash per trade.
So once you’ve signed up with a broker you can allocate some funds to a trader with a proven track record, sit back and watch the cash roll in? No you can’t, social trading is not a license to print money. You have to look very carefully at the the various factors that are shown on a traders account history to ascertain if they are for example a very lucky risk taker who may be heading for a fall.
The good platforms will have a wide variety of data, but first you will need to know what it all means, so, it may be a good idea to use a demo account while you get to grips with the software, and learn the ropes of choosing traders to copy.
Please remember that even though you will be generally copying experienced traders there is always the potential for you to take losses if they do, so it would be wise not to trade with any money that you cannot afford to lose.
Please be aware that all trading involves risk. 75% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. This content is for educational purposes only and is not investment advice.