Social trading is a concept that really began in 2006 with the launch of the first auto trading platform. The concept proved popular and over time more companies began to set up these social trading platforms. There are now a number of social solutions as companies have modified platforms to improve on the existing models.
What is Social Trading?
Social trading allows traders to find a support system which allows you to sound off ideas, discuss strategies and copy the trades of other traders that you have found through the social trading platform. You can communicate with other traders through blogs, forums, profiles and more, interacting in a way that will help you improve your trading strategies.
Social Trading Models
There are many different social trading models, but the most successful and therefore the most popular, is the model of leaders and followers. Experienced traders have the opportunity with social trading to become trade leaders. They profit by recruiting followers, as it is their signals that are made available to the rest of the retail market to be used on the platform. Followers, on the other hand, are those traders who follow the leaders. They are generally not skilled at trading and for reasons of time or inclination, prefer to follow the trade alerts put out by the leaders.
As the name suggests, copy trading allow the followers to copy the trades of the leaders. Copy trading platforms make this possible allowing traders can choose a leader from the leaderboard and then have all their trades posted and entered into your account. The follower does not need to make any decisions, but can follow the trades of the leader, although it is important to note that all responsibility of the trades lies with the follower with restrictive controls in place to ensure you cannot follow a trader blindly. The benefit of social trading via a social trading platform is that forums exists, including profiles and comprehensive biographies of leaders, with details of their trading styles, as well as open and closed trades. This will help you choose the right leader.