In this guide to social trading and copy trading, you will find various tips and tricks, as well as important information about strong and dangerous suppliers.
What is social trading or copy trading?
Before going into detail, let’s start with a brief definition of copy and Social Trading.
Social Trading is a form of investment in which you (as a “follower”) can view, discuss and copy the investment strategies or portfolios of other members of a social network. Thus, in Social Trading, “traders” and “followers” meet. The idea is that beginners can follow a professional trader with this information.
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How does Social Trading or Copy Trading work?
With Social Trading, investors can follow an investor or a trader. Both passively, observing and commenting only on trading activities, and actively, benefiting immediately from transactions that are “copied” to your trading account.
Copy trading or social trading for beginners – tips and tricks
Many beginners in trading are confronted with the question right from the start:
Do you trade or let you trade? Theoretically, it’s okay to follow a professional or let him work for you. This is what we do when we build a house, provide legal advice, consult a doctor, etc. But what if the professional is not a professional at all? How do you recognise what he or she can (can’t) do?
In other words, if you want a 100% return, you must also expect a 100% loss.
Unfortunately, beginners are unable to assess the risk/reward ratio in the beginning and therefore look for traders who have achieved the best possible return in a short period of time.
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Here it is much smarter to check the return obtained by a trader (day) over a long period of at least 6 months. Losses should be small. However, I will focus on this in more detail below.
For conventional equity investors, different phases of the market should have been considered. In bull markets, almost all of them are successful. But chaff is separated from wheat only in the bear market, because then one can see the investor’s hedging capabilities and how to (de) calm the wallet.
What investments can you invest in with Copy Trading (shares, currencies, etc.)?
The spectrum of investments in Copy Trading is very broad, stocks, commodities, currencies (Forex), etc.
Traders who work with derivatives such as CFDs are often daily traders and therefore trade several times a day or week. In addition, they work with leverage, which can increase both risk and opportunity, as traders and followers can access not only the capital invested but also the capital borrowed from the broker and thus increase the trading volume.
But there’s also the option to follow a classic value investor like Warren Buffet. In this case, the equity portfolios are then constructed and replicated with certificates, which the follower can purchase and manage on their own securities account. The certificate thus reproduces the evolution of the trader’s equity portfolio and can be purchased through a separate security identification number.
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Is it worth copying Top Trader?
The idea of copying successful traders and then being able to follow them easily without having to learn and apply your own strategy sounds tempting.
But an idea is worthless until someone realises it.
In 2020, Copy Trading, or social trading, is no longer just an idea, but a common practice. For experienced traders and those who prefer to pass on responsibility and expect quick cash, it’s an interesting concept, which we will explore in detail in this article.
Now we have come to the drawbacks.
First, it is a fact that around 90% of all merchants lose money permanently. Yes, also and above all traders on social trading platforms. Furthermore, many providers, especially CFD brokers, do not check the suitability of traders. Many can sign up within 5 minutes and start trading.
Furthermore, traders are often presented as “professionals” or well represented in the rankings, who have achieved a high return in a short period of time. But if you remember the rule of thumb above, then you know what to think of a trader who generated 273% return in 4 weeks. That’s right, nothing at all, because it’s about to go down.
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Finally, one drawback of the copy business, which seems a bit paradoxical:
A good trader does not remain a copy trader for long. Because?
Because it can make more money in the “real” world of the stock market, without bothering followers who want every transaction explained to them (at a loss).
So, if you can prove that your balance sheet is positive for several years, you will usually get better results if you join a hedge fund or accessories trading company. Because there they can trade 7-digit accounts promptly and meet similar or elite traders that they can benefit from as well.
The poor devotee has to look around again after a while and hope he has bet on the right horse. So far he has learned little or nothing. He remains addicted.
What are the social trading platforms?
Since Social Trading has developed in parallel with classic social media and therefore has already existed for a few years, we can already record some experiences with providers and the scene.
As with the crypto scene, the market has tapered off a bit, as usual after a boom.
https://www.bloglovin.com/@tradematch/trade-match-brings-financial-markets-close – Trade Match brings financial markets close to investors with copy trading
In this section, we will briefly introduce the most common suppliers. In addition to these well-known providers, there are also various CFD brokers, such as OctaFX or the company Metaquotes (Metatrader), which offer social trading and copy trading services, but also IqOption, 24 Option and others. You can find a detailed guide to the offers on the market at trading-online.pro.
Let’s start with probably the two most well-known social trading platform providers:
eToro – One of the most popular social trading providers and CFD brokers, based in Cyprus and Israel.
Wikifolio – Also a major social trading provider. An Austrian company. Here, followers can purchase index certificates (stocks) to participate in the trader’s portfolio.
Zulu Trade – A company from the United States that, according to its own information, has more than 100,000 merchants from around 200 countries. Zulutrade allows you to integrate different brokers to copy transactions.
Naga Trader – A Cyprus based company that specialises in social trading through the application and is often used by young investors.
Bux – The Dutch company also specialises in App trading. In addition to trading with CFDs, trading of classic shares is also possible here, currently without transaction fees.
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