| Updated: November 8, 2024How Does Social Trading Work?
This lesson will cover the following
- Social trading and social networks similarities
- How to follow a trader
- Private messaging and information access
Weve already explained what social trading is so you probably already have a basic understanding of how it works. If you still havent read the the introductory section to social trading, we recommend you do because from this point onward we will act based on the premise that you know what we are talking about.
Similarities Between Social Trading and Social Networks
Social trading gives you the unique opportunity to get information about the market from other interested parties. You can trade in collaboration with them or simply use the provided data for your own trades – thats entirely up to you. Social trading works on the basis of social networking. Just like Facebook is a platform that connects you, your family and your friends at all times, social trading networks provide a nurturing environment where novice and veteran traders can exchange data, strategies, methods and ideas.
Differences Between Social Trading and Social Networks
The main difference is that social trading platforms focus on the trading instead of the social aspect of the persons online and offline activity. Just like in Facebook, there is a lot of information about you contained in your profile. However, unlike Facebook, the information is not focus on you as a person, but on you as a trader. In most platforms you can easily check out an investors portfolio and see if they are successful or not, how much theyve made in the past and what their niche is. Social trading is based on the constant free flow of information on the network. Just like your Facebook feed allows you to see what your friends have been up to and keep you up to date, so do trading sites feeds inform you about what other traders are doing and how they are investing. They often share vital information and help you make advised decisions based on that information. Similarly to Facebook, not everything is true – sometimes people misinterpret data, and sometimes they just lie for their own personal gain (whatever it may be). Thats why its critical to check a traders profile before you decide that you want to listen to their advice.
Following a Trader
If you like what a trader is saying and you think that hes often right, you can choose to follow him (this function is very popular with eToro). This way you can see his moves, comments and more at all times. The process helps you learn from this person because you can see what he is doing and you can ask why if you dont understand the reason. This is where we feel compelled to advice you to always follow traders who communicate with the community. By doing so you can learn a lot faster than you normally would. Of course, if the community is huge they might not always be able to answer your questions, but there is a difference between those who at least try to be helpful and those who choose to share information and then not follow-up.
Private Messaging
Private messages are one of the best ways to learn something youre interested in. Social trading platforms give you access to millions of other users you can ask about anything. If you like a trader and follow their trades but they make a move you find confusing, you can easily ask them why they did. You can also try to predict the results of their actions by reading the same tables they do. Thus you can track your progress. You can see how good your judgment is compared to experienced traders.
Information Access
Social trading provides a rich environment for you to thrive. The platforms give you access to tons of important and synthesized information you would need a lot of experience and knowledge to acquire otherwise. Through the perpetual data stream, social trading allows you to enter trades and make financial decisions without necessarily possessing the knowledge required to make the right moves. Social trading is the ultimate weapon for the new trader.
Help Your Fellow Traders
If youre an experienced trader, you might want to help others and give back to the community. You can easily do it via social trading platforms where you can be sure that the information you provide will be read by people who will use and appreciate it.
Final Words
Social trading is very similar to the social networking you know and love but its much more functional and the information it provides you with is much more deliberate. Its unlikely that you will see something unrelated to trading on a trading platform. That being said, social trading is not stiff and boring. Its a very lively and positive environment you can easily become a part of. Whether you want to share your experience with other people or you want to learn how to trade, there is a place for anyone.
At the end of the day, social trading is based on the inherent human instinct of collaboration. It allows you to work with, be helped by, and assist others. Ultimately, though, the decisions you make are your own. Social trading gives you the opportunity to act. How you do is up to you.