Forex social trading has several aspects which must be fully understood by anyone who wishes to participate in this type of trading. Investors who want to engage in this type of trading should:
- 1. Decide on a model which works for them and their trading style
- 2. Select from a wide variety of trading platforms
- 3. Develop a clear understanding of how to select a platform
- 4. For followers, learn the metrics behind leader selection
- 5. For Money managers, learning how to make their signals marketable.
Social trading is educational and potentially profitable. Why not take advantage of this innovative solution that turn a newbie trader into a seasoned professional?
THE BIRTH OF SOCIAL TRADING
The forex market has evolved greatly in the last 20 years. Not only has the daily turnover increased by hundreds of percent in the last decade, but several new technologies have been created which have allowed many innovations to occur in the market. The concept of social media and online communities was infused into trading creating the concept of social trading – traders from all over the world come together to trade as a community, usually under the guidance and leadership of a few, select master traders. This could be in the form of a community, or as a structured trading product where signals are delivered by several master traders, while less experienced traders follow the trade alerts of these master traders for a fee.
THE UNDERSTANDING OF SOCIAL TRADING
This phenomenon did not kick off until sometime in 2006 when the first auto trading platform was launched. This was not a full-fledged network, but the concept was well received by the market. It was not long after that other companies began to set up their own full-fledged social trading platforms. As the years went by, these platforms were modified as companies tried to improve on existing models.
SOCIAL TRADING MODELS
Various models for social trading exist, but the most popular and most beneficial to traders is the one that has Money managers (MM) and followers.
The MMs are the master traders who are skilled at trading. Their signals are provided to the rest of the retail market for use on the platform or if it is a PAMM account, his trades will also be executed on his followers’ accounts. Read more on PAMM accounts
The Followers are the traders who, since they are not skilled, do not have the time or simply prefer the easy way out, opt to follow the trade alerts of the MMs or connect to their MM account in case of PAMM account.
SELECTION OF A SOCIAL TRADING PLATFORM OR A LEADER
Money Managers and followers have different reasons for using a social trading platform. MM will look for the offer with the best compensation for their work. Followers will look for a platform where they can find leaders who can provide good rates of success. All of them will be seeking for a platform/broker with reasonable fees. Selecting a platform also goes hand in hand with selecting a Money Manager. Various metrics can be used and these are provided by the platforms. MM do not need to select followers. They simply need to create a good trading history and when they do, the word will go round.
YOU CAN ENGAGE IN SOCIAL TRADING TOO
There are many reasons why you should engage in this type of trading. Institutional trading firms who cart away billions from the market are run by a team of traders at various levels, with experienced traders guiding inexperienced ones until they gain enough experience and start to command the same results. Another plus is that it brings isolated retail traders together and mimics the structure of institutional trading teams.