What is social trading (community trading)?

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Image: Social Trading (Community Trading)

What is social trading (community trading)?

With the development of social networks there is a new trend in online trading, called community trading or social trading. It is when an online community appears, of people interested in a specific subject, online trading, who make their trading decisions mostly if not solely based on what other traders have done.

The advantage is that there is no need to master fundamental or technical analyses to develop a trading strategy, as all you need to do is replicate what successful traders do to make profits on the stock market.

Several online trading networks are involved in social trading, which blends traditional social networks and the latest trading platforms.

Social trading features

A considerable exchange of information and cooperation are the distinctive features of social trading.

Exchange of information: Information flows freely between financial investors. To achieve this, online trading platforms include a social trading service to update users on real time trader activity.

Trading cooperation: Community trading makes it possible to work together within teams which collaborate on the market by pooling their financial resources, spreading out the research work, or sharing information.

Community trading: a full-blown trading tool

Many traders use community trading as a full-blown decision-making tool, on par with fundamental or technical analysis. Hence, some online brokers have opted to offer tools facilitating social trading as a real decision-making tool, directly on their trading platforms.

With this new type of information, a novice trader can check the rankings of traders and identify the more successful ones. He can then decide to copy their trading strategy. On some online trading platforms you can even set up an entirely automated trading system to replicate decisions made by a trader assumed to be more seasoned or more profitable. It is much easier to use this function than to learn programming or to build a computer algorithm.

To spread and reduce the risk, some investors develop a portfolio of traders with varying strategies and characteristics.

Community trading efficiency

It is hard to know for certain if community trading helps to make more profits than traditional trading.

There are some principles to respect. A trader topping the rankings will not always make more gains, so you should beware of setbacks. It is crucial to constantly monitor the traders being followed, to keep updated on trends, and to be in a position to adjust choices and positions if need be. It is also essential to use diversified sources just like for any online trading, and not to follow and replicate only one trader’s activity.

Community trading is mainly a way to help uninspired traders to make investments. It helps communicate with other traders to support strategy decisions. But community trading cannot be solely a copy-paste mechanism to replicate other traders’ activity and can only work and increase profits if used sensibly. Most online trading platforms currently offer users a community trading service.

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Last Update on 14/12/17

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