Forex Social and Copy Trading
Forex social trading enables Forex traders to interact in real-time and share knowledge, strategies and methods. Less experienced traders can take the help of more experienced traders and even copy their trades and techniques.
They can subscribe to trading signals and have them executed on their own accounts. This is known as copy trading.
History of Copy Trading and Social Trading
A primitive form of copy trade began when some traders communicated in newsletters when they wanted to open a trade.
They emailed their subscribers to let them know it was time to buy or sell.
When the time came to reverse the order, an email went out and the items were closed.
Later some dealers used the same basic concept and only communicated with the other dealers in a chat room.
For this to work, you had to trust the skills of the dealer who was in charge.
There wasn't much to do other than personal experience, anecdotal evidence for those who had copied him or the trader's reputation.
As technology advanced, it became possible to replicate a trade from one account to another.
Forex platforms were able to track the success of the strategy and record all kinds of metrics so everyone could see how successful it was.
Anyone can subscribe to these strategies, and the same signals executed on the original trader's account can be executed on the subscriber's account.
The next step beyond subscribing to a trader and automatically executing their trades in your account is to interact with that trader.
It's kind of a mix between copy trading and social media. You can watch others trade and duplicate their trades yourself.
How do social and copy trading work?
In traditional forex trading, individuals usually used their understanding and knowledge of basic 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 reading a newspaper or a financial piece.
The Broker
When the time to trade came, they called their broker in the days leading up to the internet.
Nowadays we simply click the buy or sell button of the appropriate currency pair.
But the point is that the broker is the one who makes the trade possible.
You find buyers and sellers and bring them together.
This is no different in the social and copy trade.
The Signal Provider or Expert
Signal providers are usually seasoned traders with a strong understanding of the market and its underlying forces.
They use this understanding to execute trades based on signs in the market that something is likely to happen that can be exploited.
In social trading, followers can have all of an expert's trades executed on their accounts.
This enables investors with limited market knowledge to benefit from selecting the right expert.
The trading platforms give a lot of metrics on how the expert is trading so that you have a solid idea of what to expect if you allow his or her trades to be done in your account.
The Follower
The follower is someone who subscribes to a signal provider.
You don't necessarily need to have an understanding of what exactly is driving price in forex or to develop your own strategy.
You can simply take advantage of the signal provider's expertise, understanding, and strategies.
What do I have to do to use copy and social trading?
To be able to participate in copy trading and social trading, you need an account on a platform that supports these functions.
It should be noted that not all platforms that support copy trading also support social trading.
Once you've found a broker that supports the features you want, make sure you are aware of any concerns associated with replicating another account's trades through your account.
Evaluate the performance of the signal or expert you want to follow.
Various warnings may appear when concerns such as the number of trades on the account are insufficient to judge the expert's signal or trade quality.
Whether the data is enough to be trusted is your personal decision.
Many signals and experts charge money to subscribe to or follow.
They often need to agree to certain terms of use for their business to run on your account.
Make a note of all the required parameters.
Risks of Copy and Social Trading
Just like when you make the trading decisions for your account, a blockbuster news event can move the markets in a way that no signal, human or bot, could foresee.
Make sure your signals are at reasonable stop loss and take profit levels and make sure they are copied to your account.
If you subscribe to one or more signals, you may suffer from insufficient diversification as all signals may use the same strategy and you will remain exposed once the market conditions that made that strategy work have ended.
Because of this, it is important to choose signals with a long track record.
If you are dependent on a signal and that signal is suddenly interrupted or the signal provider changes their strategy drastically, you may be exposed to trades that do not fit your allocation or you have no plan at all.
Other risks are technical risks like being disconnected or not synchronising with the signal trader.
Conclusion
Copy and social trading trading are exciting developments in forex.
It enables novice traders to leverage the vast experience of talented and dedicated traders to provide them with a source of income and generate profit for the beginning.
Social trading has never made it easier to learn the pros and cons of trading forex.
Since forex is the most heavily traded and most liquid market in the world, it makes perfect sense that forex traders love to trade in copies and trade on social networks.
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