Social Forex
Brokers
With the advent of social networks, many Forex brokers have embraced a community-based approach to trading and have incorporated social trading tools and features that adds to the investment experience. So let’s explore what social trading can offer you.
Although social networking has only invaded recently, trading in numbers is nothing new. Large financial institutions have always had tens and even hundreds of traders huddled in a room together and helping each other make decisions.
The basic goal of social trading is to give regular, non-professional retail traders the same advantage of group thinking that institutional traders have been enjoying for decades.
With social trading and investing networks growing in number and popularity, it seems that this mode of trading is quickly becoming a regular fixture in the Forex broker industry.
How does it work?
The main concept behind social trading is the sharing of information through live feeds for the purposes of making more informed trading decisions. But whereas on regular social networks members share links, media and opinions in addition to all that, members of a social trading network share their trading information.
Depending on the network, you can either manually share information about your trades in the public feed, or it is shared automatically whenever you make a trading action. In addition, on most networks you will have a public profile that will include your trading history and performance statistics. Based on these, traders can choose to “friend” you, “follow” you... or in some cases “copy” you.
Why size matters
The size of a social trading network matters as much as the size of any other social network: to put it shortly, you can’t really be social if there’s no one to be social with. ֿ
A larger social network also guarantees that you will have access to a variety of traders from all around the world, and that mean a variety of trading styles, experience and knowledge to which you will be exposed.
Forex trading unfortunately has a pretty fast turnover, and so a large network guarantees that when your favorite traders leave or stop trading, there will be a large choice of people to take their place.
Social trading tools
Each social trading network comes with its own set of unique tools. Because this is a
relatively new mode of trading, the creativity and innovation in this field is quite impressive. From signals based on top traders’ investment activity, to network wide indicators of how many people are buying and selling any given instrument, the possibilities seem to be
endless.
The standard for any network is to have a search tool that allows you to sort through traders based on their trading statistics. So if you’re looking for high risk, high reward traders to
connect with, you don’t have to sift through every person on the network - instead use a simple parameter search.
Another industry favorite is the “watch lists” feature, wherein you can compile your own feeds of people to watch based on whatever categorization you like. For example, you might build up a list of traders investing in stocks and a list of traders investing in currencies, so you can check separately what is happening with each asset class.
Copy trading
All of the above is well and fine, but what makes social networks really popular is the ability to copy trade. Copy trading can mean two things:
1) Manually copying a trade you see in the public feed
2) Allotting funds to automatically copy all the trades made by a certain trader
2) Allotting funds to automatically copy all the trades made by a certain trader
As you can see, the first definition still involves you making an individual trading decision, while the second is much closer to automated trading (like algo-trading), and it is the second definition of copy trading that makes it so appealing, especially to novices.
Trades that are copied remain under the copied trader’s control and any decision he makes regarding their original trade (i.e. as changing the investment amount, editing stops, or closing the trade) will affect the copied trade.
Copy trading does have an advantage over automated trading, in that most brokers will show you all copied trades and, unlike algo-trading, will give you the possibility to take over a copied trade, by closing it or editing its parameters.
Top trader reward programs
Because copy trading is such a hot draw, some brokers choose to reward popular traders, i.e. traders with a lot of copiers, with various perks or additional revenues. This strategy guarantees that traders who are copied have an additional incentive to maintain steady gains as they are rewarded based on the number of copiers, who tend to leave if the investor can’t keep up their performance.
Some of these reward programs can be quite lucrative, offering members thousands of dollars in monthly payments as well as some of the extra perks that are usually reserved for Premium Accounts. So if you choose to trade in a social trading network and you see that you are gaining popularity with copiers, it’s definitely worthwhile to check out if there’s a rewards program you can join.
Overall, social trading makes a nice addition to the trading experience, if only by virtue of providing a feeling of camaraderie and community. Financial trading can be a lonely and frustrating business, and even the humble possibility of sharing a few jokes with your trading buddies can help you relieve stress and keep your emotions in check while trading.
Manage your Copy risk
Like all automated trading, copy trading is very risky, but some brokers provide you with tools to manage your risk.
The most important of these is a Stop Loss order that you can place on your Copy relationship. As for example, if the trader you’re copying lost 50% of the funds you’ve allotted to them, the copy relationship will close and the remaining funds will transfer back to your balance, meaning you will no longer be able to copy them.
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