This article was written by Luis Aureliano, a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.
Social trading is an innovative form of market exposure in which traders and investors make their trading decisions based on the activities of other traders and investors. Social trading provides traders with user generated financial content that they can analyze to make educated trading and investment decisions. One of the biggest advantages of social trading is that beginner traders can get right into the serious business of trading and making money on Wall Street without first wasting time and resources in learning the ropes.
With social trading, beginners don’t need to rely much on technical and fundamental analysis of financial instruments. Social traders can compare the trading decisions of other traders, examine the strategies that led to the trades, and they can copy the trades that they think has the best odds of success. This piece seeks to provide beginners with a simplified overview on what to expect from social trading.
Here’s why many beginners don’t understand social trading
When most people hear about social trading for the first time, they are often confused about how social trading could help them reach their investing goals and objectives. To start with, trading is hard even when you are responsible for making your trading decisions. You’ll need to devote time and resources to studying and understanding the markets. Even after you most diligent preparatory efforts, the odds will still be stacked against most beginners because of many “uncontrollable” factors that could make the trade turn against them.
The fact that the financial markets doesn’t usually throw a welcome rug out for new traders and investors is key reason beginners are often skeptical of social trading. Of course, not many people will easily agree that they can improve their odds of trading success by following the activities of other traders and investors.
Here’s why social trading is a smart way for beginners to enter the financial markets
Social trading is a smart way for beginners to gain exposure to the financial markets because it significantly lowers the learning curve for knowing and understanding how the market works. Social trading allows you to distill the wisdom of the ‘crowd’ in order to make smart trading and investment decisions. Social trading helps you to understand the thought process that goes into the trading decisions of some of the most successful traders and investors on Wall Street.
Secondly, beginners don’t have to do much work in learning how social trading works or conducting due diligence. Some social trading experts such as InvestinGoal are committed to making social trading easy for beginners. You can always find reviews devoted to providing accurate information on what you can expect from some of the top social trading platforms available. You can also learn how to find the best traders, how to benchmark their success, and how to backtest their past performances.
Thirdly, social trading can be a valuable tool for creative a passive stream of income through trading and investments. Some social trading platforms can allow you to automate your trading such that your portfolio is synced to the portfolio of a successful veteran trader. Any moves that the veteran makes in their accounts will be replicated in your account. In essence, you’ll make money when the veteran makes money irrespective of whether you are actively involved in monitoring the trade or not.