Five Benefits of Using Social Trading Platforms
The financial markets offer a limitless variety of opportunities for money making. Expectedly, entrepreneurs keep trooping into the market to tap into the available opportunities, with different innovations to help traders along the way.
One of these useful innovations is social trading, which adds elements of social media to online trading. With cutting-edge technology to boost its operation, social trading has greatly revolutionised how people trade by making it possible for people to interact and collaborate on best approaches to trading.
While there is no shortage of social trading platforms, the most popular social trading platforms include eToro, ZuluTrade, Currensee, Ayondo and FXSuperTrader.
The popularity of these trading platforms is no doubt boosted by the many benefits that this model of trading offers. Here's an overview of the top five benefits of social trading:
1. Social Trading Platforms Speed Up Learning
For anyone to be successful in trading, a significant amount of learning has to be done. You will need to be familiar with how to study trends, charts and movements in the market. The problem here is that learning on your own could take you so much time, with many resources available online on web pages, ebooks or videos.
Social trading eliminates such stress, which still does not guarantee that you will be successful in trading. This model enables you to learn from experienced and successful traders by studying what works for them.
You may choose to either implement similar trading approach or strategies as these other traders or use the knowledge gained to fine tune your own strategies. eToro offers a social trading platform that seems to have a special bias for novice traders.
2. Earning While You Learn
It is rare to see places where apprentices are paid to learn a trade. Social trading platforms offer this rare privilege to novice traders. You can not only learn quickly with social trading, but you can also make money at the same time.
Once you are able to get your choice of traders whose trades you want to copy right, you can expect to start making profits as you learn. Some social platforms make it possible to easily locate the most successful traders.
For example, eToro's guru search tool can be used to easily find successful traders whose trades you would love to copy and make profit off. Some other platforms such as Zulutrade and Currensee have ranking systems listing social trading leaders on the basis of a variety of factors.
3. Room for Collaboration
Another prominent benefit of social trading platforms like eToro, Zulutrade, Ayondo and InstaForex is that they make it possible for you to connect with other professional traders.
Before the advent and popularity of the Internet, trading was almost exclusively done in centralised locations. This sort of arrangement made it possible for traders to exchange ideas with one another and more effectively gauge the overall market sentiments.
The transition of trading from trading floors to computers and the Internet virtually eliminated that extent of collaboration. Social trading networks are helping to create room for such collaborations again. These trading networks are very much like social networking sites such as Facebook and Twitter in a way. You can easily contact other traders to exchange ideas and get advice on what form your strategies should take. These media enable you to discuss possible impact of some major events on the market with other, probably more-experienced traders or you simply copy their trades.
4. Elimination of Personal Bias
Personal bias is one thing that has caused many traders to miss out on profitable trades or enter into losing trades.
Whether you are aware of it or not, the opinions you hold about some assets influence the actions you take on them, most of which may go awry. But this is a problem that social trading platforms can be helpful in guarding against. You are able to alter or modify the way you view different assets by trading in conjunction with other people.
By trading as part of a group, you are able to broaden your perspective with input from other people. This also makes for a better, more efficient way of keeping your emotions under control. Views of other people could hold you back from pressing the panic button that could prove rather costly.
5. Help to Improve Risk Management Skills
Social trading platforms can be of immense assistance in improving your ability to manage risk when trading. By copying and observing more successful traders, you will become better enlightened on what strategies work and the ones that do not with time.
The knowledge garnered can then be put to use so as to ensure you keep your investment risk low when developing your own strategies - this may not be possible by trading on your own without access to social trading.
Besides, some of the platforms such as Zulutrade and Currensee offer you opportunity to search for successful traders based on their risk management skills. Social trading is one of the best things that have happened to the trading of Forex and other instruments.
Social trading platforms have helped to make trading more interactive to the benefit of traders, much unlike traditional trading. While the benefits listed are not all there is to social trading, hopefully this has given you some insight into what the hype around social trading is all about.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.