Tuesday September 4, 2018 - 11:33:39 GMT
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Social trading is transforming the global Forex marke
The 21st century has been marked by a number of technological innovations that have transformed our professional and personal lives. The internet has become our main window on the world, communication across the globe has become quicker, cheaper and better, while smartphones have delivered access to all that the online world has to offer, 24/7, wherever we might be.
Yet if there is one single innovation that trumps even these things as far as impact is concerned, it is social media. We interact with a wider number of people on more platforms every day than would have been imaginable 20 years ago. Social media is not just about keeping up with friends on Facebook or colleagues on LinkedIn. For example, social gaming means we can enjoy a night at the casino with friends without leaving our homes, and has brought about a whole new concept of eSports, where enthusiasts compete in or watch multi million pound sporting events that take place in cyberspace.
What is social trading?
Social tools and communication platforms are becoming a part of practically every online commercial enterprise. If you are looking to buy a car, book a hotel or bet on a sports team, there are social channels where you can seek advice, read the opinions of others and see what everyone else is buying, booking or backing. Social trading simply takes this philosophy to the world of Forex.
Intuitively, it makes a great deal of sense. Forex trading is an area that has really opened up to amateur investors in the digital age, and there are numerous trading tools, platforms and smartphone apps that can get a beginner up and running in a matter of minutes. These take a non-technical, incentivised approach that will appeal to newcomers by offering bonuses for first time traders, referrals and so on.
All these factors prove enormously tempting to those who want to make a quick buck out of Forex trading. However, the dangers of being in a position of “all the gear but no idea” have never been greater. The idea that amateur traders are walking a dangerous line and are likely to lose more than they gain is nothing new as this 2010 article from The Guardian clearly demonstrates. However, the fundamental point here is that it is not the tools or the indicators or the apps that are at fault – it is simply a case of how they are being used.
Professional, experienced traders make plenty of money out of Forex, and the same applies to new traders who take the time to really research their art and devise a robust strategy with the right risk management protection. The trouble is, many new traders dive in without doing this legwork. Social trading is nothing less than a Godsend for people in this category, as it provides an opportunity for them to benefit from the knowledge, experience and strategic insights of successful traders.
Not just for beginners
The attraction of social trading for newcomers to Forex is clear. The exact way that it works varies from one site to another, but essentially, it allows them to both interact with experienced traders and also to “follow” their trading strategies.
However, nobody gives away all their strategic insights for nothing, not even in the social media age. So what’s in it for the professionals? Essentially, it is the same old story that is seen across other types of social media. Star traders bring more traffic to the brokerage site, and will be rewarded for doing so. In other words, it means they can make additional money for every successful trade that they make and that others follow.
What’s the downside?
The benefits of social trading are clear. Professionals get to earn extra revenue, amateurs get to piggyback on the success of experts and the platforms themselves can derive profits from premium services and advertising. When something sounds like such a win/win, there is usually a catch, so what is it here?
Even the best traders will find that their strategy lets them down sometimes, and the occasional trade will inevitably go wrong. If the follower’s risk appetite is not aligned with that of the professional, that can rapidly lead to disaster. There is also the question of managing expectations. Some newcomers expect that they can get rich instantly – if there was a guarantee of that, everyone would own a yacht and drive a Ferrari.
Smart use of social trading
Ultimately, there is no substitute for knowledge and experience when it comes to trading. However, the social trading phenomenon is a valuable tool for acquiring that skill, and if it is used in that context, it will provide newcomers with a far greater chance of long term success.
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