What is Social Trading?
You probably know technical analysis and fundamental analysis as the two learning schools of Forex trading. We also talk about quantitative analysis, which is based more on numbers than on graphs. However, recently, we are starting to see a new way of trading: social trading.
Remember, in the early days of Forex trading, when everything was happening in stock markets (like the good old Palais Brongniart in Paris), and that the only way to have information were phone calls and news to the TV. Subsequently, phones were replaced by instant messaging, and TV by Internet information flows. With the advent of Web 2.0, information sharing has never been faster and more efficient, and this is where social trading is going to play out.
As the logic of Web 2.0 requires, traders/investors have moved from the opaque secrecy of their operations to totally transparent sharing. What is the point of revealing his secrets, will you tell me? Transparency! Investors’ confidence can never be better than being transparent about what we do. And also emerges the community trading, which wants that by helping one another and by trading with others, one is always better.
So 2.0 traders share their business and discuss with other traders why or how they traded that way, and how they could maximize their profits. Beginners, meanwhile, can simply follow the list of real-time positions of more experienced traders, in order to take to learn by example.
eToro was the first broker to set up a social trading system, with the launch of the OpenBook in 2010. All traders of the platform can, therefore, share their trading activity in real time (open and closed positions, gains in percentages, earnings ratio … without giving the amount of money invested and earned, these data are kept private, of course!). Other traders can then follow this flow of activity in real time, understand the reasoning of the guru and decide whether or not to follow his trading direction.
It is possible to follow a trader in a completely automated way on a social trading platform (all decisions will be automatically followed, but you set the amounts allocated), and you then become a spectator of the trader’s performance on his capital, and then done, of your capital. But it is also possible to follow it manually by selecting its decision making according to your own judgment, and again, to allocate the sums you decide.
And what does it work
It may still be a bit early to say that social trading works better or worse than “traditional” trading. Professional traders with years of experience are of course not close to changing their habits. But for beginners, this is an interesting opportunity to learn to trade Forex by example. The novice trader can simply follow in real time the activity of an experienced trader, and even interact, chat and ask him questions.
eToro announces nice numbers, of course, with an average of 3% to 4% earnings per month on all traders who have adopted this strategy at home since the launch of their automated social trading (which is still not bad) , compared to a placement in the bank that would earn you 3% to 4% per year ). I think that social trading is worth it, especially because it opens the way for a new type of trading for a new type of investor: normal people like you and me.