For long, traders in the stocks market, forex market, commodities, and other financial markets out there kept to themselves important information with regards to the strategies and techniques they used in trading. For market traders, they needed to be constantly updated with company news and macroeconomic trends.
When it comes to such information, social networks are the best communities to join. It is when social trading was popularized as a way to share information and strategies among fellow traders.
The credibility of Word-of-Mouth in Social Trading
Although there are still a lot of traders who are choosing the safer option of investing their hard-earned money, it is somewhat making its own name when it comes to funding management, especially among the younger generation.
There are now a lot of platforms where individuals gather to share their experiences and strategies related to trading. The most important benefit is, you’re copying the investment strategy of a trader who is also using the same strategy to grow his money. Moreover, recommendations serve as a powerful force.
The Cons of Social Trading
Just like any other trading strategy, it also has its own set of drawbacks that aren’t always mentioned. The major problem encountered among traders is failing to identify which trader they should follow. Unfortunately, there is a huge number of traders who invest their money based on the performance of unqualified experts. This is a very common problem and yet, the solution is not always met.
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Another problem is the leverage. Traders tend to be greedy and take on huge leverage to improve their investments, especially in the foreign exchange market. It is true that taking out loans increases your gains, but it also has a spear effect as it can also magnify losses.
Although you are following people who are smart and experienced in this field, there will surely come a time when the investment value will dive. Some of the most common reasons why traders lose cash are their rapid usage of leverage and they are being impatient shoulders a huge part of the blame.
For new traders, it is always a helpful reminder to limit the investment and choose the risk/reward ratio carefully as well as the leverage that you take in.
The Pros Outpowers the Cons of Social Trading
Weighing the pros and cons, it is evident that social trading benefits traders more than its downside. But traders and investors are not the only ones to benefit from it. Huge banks and funds constantly check the market’s mentality, signs of activity, and shifts in momentum.
Large Institutions are Creating Their Very Own Social Platform
Firms and large financial institutions are starting to offer their own social trading platforms to respond to the needs of their users and win potential investors. The use of it allows users to have a clear view of the growing wealth of other traders and copy their strategies for you to also succeed. The gains you acquire through it are significant, but this does not guarantee that you won’t suffer losses. It is still very important to manage the risks accordingly.
