Social trading is rapidly gaining traction as an innovative solution for bridging the gap between beginner traders/investors and the financial markets. As a matter of introduction, social trading is a form of trading in which traders and investors glean trading insight based on the activities of other traders/investors in their network. Social trading usually involves the use of user generated financial content to compare and copy strategies, techniques, and trades with a view to making sound investment decisions.
One of the main advantages of social trading is that it shortens the learning curve required of beginner traders and investors to understand how the market works. Armed with a basic understanding of the market, an investor/trader employing social trading strategies can start placing trades instead of wasting years studying different trading strategies in the hopes of finding a style that suit your financial goals.
Nonetheless, the fact that social trading takes out much of the heavy lifting required for trading and investing often causes some traders to forget that all forms of investing should be seen as serious business. This piece provides insight into why you need to take social trading seriously.
Social trading is a serious form of investment
Social trading helps you get started on the trading and investment path without much delay; in fact, you can be rest assured that you’ll book comparable gains like seasoned full-time investors. However, social trading doesn’t mean that your trading portfolio will start growing automatically or that you’ll start booking gains without lifting a finger. You’ll need to be on a constant lookout for ways to update your social trading knowledge and skills.
InvestinGoal’s guides provide free education on different aspects of social trading. For instance, you’ll need to learn how to distill, refine, and convert the wisdom of the crowd into a trading tools that enables you to make smart trading decision. You should also attempt to understand the thought process behind the trading decision of the traders in your network by reading their posts and asking relevant questions.
Social trading doesn’t necessary absolve you of investment responsibility
Social trading and copy trading allows you to benefit from other people’s trading knowledge and expertise. However, the fact remains that you are still ultimately in charge of making your trading and investment decisions. Hence, you’ll need to manage risk by only putting down a fraction of your portfolio that you can afford to put into speculative trades.
You’ll also need to conduct your due diligence to ensure that the you are aggregating reliable social trading data. You’ll should also be responsible for picking a strategy by considering the risk-score of the traders you want to copy.
You are also responsible for picking the time frames in which you’ll enter and exit your trading positions. Different traders adopt different trading styles – some people hold positions as day traders while others might hold their positions for days or months for long-term investments.
Some copy trading tools on a social trading platform can allow you to automate your trades. Automatic trades will simply piggyback your portfolio on another investor’s portfolio and every move they make in their portfolio will be replicated on your account in real time. However, you’ll still need to commit to checking up on your account regularly in order to ensure that the trades are moving on in line with your expectations.