Forex social trading enables Forex traders to interact in real-time, sharing knowledge, strategies and methods. Less experienced traders can leverage the help of traders with more experience and even copy their trades and techniques. They can actually subscribe to actual trading signals and have them execute on their own accounts. This is known as copy trading.
History of Copy Trading and Social Trading
A primitive form of copy trading began when some traders would communicate out in newsletters when they were going to open a trade. They would send out an email to their subscribers to let them know it was time to buy or sell. When the time came to reverse the order, an e-mail went out and the positions were closed. Later some traders would use this same basic concept, only communicating with the other traders in a chat room.For this to work, you had to trust the skills of the trader who was calling the shots. There wasn’t really much to go on except personal experience, anecdotal evidence of those who had copied him or the trader’s personal reputation. As technology advanced, replicating a trade from one account to others became possible. Forex platforms could track the success of the strategy and record all kinds of metrics so that everyone could see how successful it was. Anyone could subscribe to these strategies, and the same signals that would be executed in the original trader’s account could be executed in the account of the subscriber. The next step beyond subscribing to a trader and having his trades automatically executed in your account is to interact with that trader. It’s sort of a blend between copy trading and social media. You can observe others trading and duplicate their trades on your own.
How Does Social trade and Copy trade Work?
In traditional Forex trading, individuals typically used their own understanding and knowledge of fundamental and technical analysis to form their own opinions about what would happen in the market. Perhaps they would take market sentiment into account by asking their friends or from reading a newspaper or a financial piece.
The Broker
When the time came to trade, in the days before the internet came along, they would call their broker. Nowadays, we would just click the buy or sell button on the appropriate currency pair. But the point is that the broker is the one who makes the trade happen. They find buyers and sellers and match them together. This is no different in social and copy trading.
The Signal Provider or Expert
Signal providers are typically experienced traders, with a strong understanding the market and its underlying forces. They leverage this understanding to execute trades based on signs in the market that something is likely to happen that can be taken advantage of.
In social trading, followers can have all of an expert’s trades executed in their own accounts.
This allows investors with limited knowledge of the market to profit by choosing the right expert to follow.The trading platforms give a great deal of metrics on how the expert trader is performing, so you will have a solid idea of what to expect if you allow his trades to be carried out in your account.
The Follower
The follower is someone who subscribes to a signal provider. They don’t necessarily need an understanding of what exactly moves the price in Forex or to construct their own strategy. They can simply utilize the expertise, understanding, and strategies of the signal provider. In the case of social trading, you can follow an expert trader and all of his or her trades will be executed on your account.
What Do I Need to Do to Take Advantage of Copy Trading and Social Trading?
To start participating in copy trading and social trading, you will need an account on a platform that supports these features. It should be noted that not all platforms that support copy trading also support social trading. Once you find a broker who supports the desired features, make sure you are aware of all the concerns that come with your account replicating the trades of another account. Evaluate the performance of the signal or expert you plan to follow. You may see various warnings about concerns like the number of trades on the account not being sufficient to judge the signal or expert’s trading quality. Whether the data is sufficient enough for to trust it or not is your own personal decision.
Many signals and experts charge money to subscribe to or follow them. You will often have to agree to some terms of service for allowing their trades to be executed on your account. Take note of all the parameters that are required.