Social forex trading can be a great solution for beginners who are just get started out forex trading. You can learn from other traders whilst improving your trading skills and knowledge of the markets in the meantime. Social trading can also be a great option for anyone who simply does not have enough time to trade manually or learn how to trade, so they prefer to copy forex signals of others. However, there are some pros and cons to consider before you get started which I will cover in this guide.
What is social forex trading?
Social trading is a form of forex trading that enables traders or investors to copy and execute the strategies of other users or more experienced traders. While most traders perform their own fundamental, technical and price action analysis, there are some aspiring traders that prefer to observe and replicate the analysis of others.
Social trading can be a good way to learn from experienced traders and can also give you a friendly community to share your thoughts and ideas with. Trading forex online can be a lonely endeavour, which is one of the reasons why social trading platforms such as eToro have been so successful in bringing like minded traders together.
How does social trading work?
If you want to start social trading, you just need to open an account with a social trading forex broker. Then you will be able to browse the community and check out the statistics of other traders. You will be able to filter them and follow those who have similar interests and are using forex strategies that fit within your financial goals.
Is social forex trading any good?
Yes, I think social forex trading is a great way to learn from more experienced traders. You can learn good and bad habits. You might see a trader who is trading infrequently but using low risk and making conservative gains. On the other hand, you could see a trader who is making larger gains but having very high drawdowns. By observing others, you can think about how you would like to trade and implement their ideas into your own forex trading strategies.
The best forex social trading platforms should provide a great deal of transparency. Traders can see exactly how other traders are performing and how much profit or loss they are making. This makes it more convenient when you are looking through the various strategies and choosing which traders you would like to copy. You can choose to follow the traders that have a similar trading style to you.
Social trading can help to diversify an investment portfolio. Rather than investing all of their money in one currency pair, you will find that the majority of social trading platforms will have other financial instruments such as stocks, commodities, indices and cryptos. You will usually be able to copy the trades of multiple traders.
Social forex trading platforms are typically very user-friendly as they are geared more towards beginners who are looking to take their first steps into the world of online trading. Many of these platforms offer features such as live chatrooms, trading guides and news feeds that make it easy for traders to improve their knowledge and stay up-to-date on market conditions.
Is social forex trading safe?
Yes, provided you use a regulated forex broker that must comply with strict rules and regulations that have been put in place to protect traders and investors. Of course, if you are social trading in a random group without any regulations, then there is a chance it could be a forex scam.
Even if you are using the best social trading platform in the world, social forex trading is highly speculative and that you could sustain significant losses exceeding the amount used to copy the strategy of a trader or traders. Replicating a trader’s strategy does not guarantee the same return.
You should browse through all of the different traders and carefully check their statistics to make sure that they align with your goals and fit within your risk tolerance as everyone is different in that respect. Whilst historical results can give you an indication of how a forex strategy works, it is by no means any guarantee of future performance.
Why do traders use social trading?
Social trading allows you to trade forex online with the help of others and may even reduce the learning curve that it takes to get from novice to experienced trader. Just like with a normal social media platform, social traders can interact with others. They can watch others take trades, then duplicate their trades and learn why they may have taken a trade in the first place.
Social trading vs copy trading
Copy trading is where you just copy the trades of another trader directly onto your own trading account, usually automatically. In other words, you are mirroring their trade. This is done by connecting your trading account via a copy trading platform to theirs and then copying their signals. On the contrary, forex social trading is where you can interact with other traders and get insights and ideas from them.
I personally think that nothing can beat learning how to trade forex manually by yourself. This way you do not need to rely on anyone else and cannot blame anyone when things go wrong. You will make mistakes along the way, but this can help you to learn and become a better forex trader in the long run.
Yes, you may find an excellent copy trading platform or forex signal provider, but what if they were to vanish one day. You would need to start from scratch. If you develop and practice your own forex strategies, you have the skills required to trade forex by yourself when and how you like.
Social trading vs forex signals
Forex signals are usually sent to you via email, SMS or a dedicated app. From there, you can decide if you would like to take a trade or wait for the next opportunity to come along. Social trading is more geared towards sharing ideas within a community of traders, where everyone is trading to become a better and more knowledgeable trader.
From my experience, social forex trading platforms are usually accessible via forex brokers such as AvaTrade. This means that they can have the backing of a large company that is regulated and has the latest trading technology innovations. On the contrary, some forex signals can be sent out from an anonymous user who is simply looking to cash in on naïve traders who are looking for a quick fix.
How do you start social trading?
- Set your budget and risk preferences
- Review the different social trading platforms
- Select a platform that meets your needs
- Select a reputable forex broker (if required)
- Search for suitable traders to follow using various filters
- Follow traders for a while and learn their strategy
- Test strategies on a forex demo account
Advantages of forex social trading
- Save time from analysing the markets
- Get up to date market news
- Share ideas with like-minded traders
- Learn from the experience of others
- Get inspiration for trade ideas
- Copy forex signals automatically
- Some top brokers have social trading platforms
Disadvantages of forex social trading
- Can be reliant on other traders
- Might not produce good results
- Traders might not always be available
- Conflict of trading strategies or ideas
Conclusion: does social trading work?
Yes, social trading can work and there or some popular social trading platforms to choose from including ZuluTrade. The reason I say “can” work is because nothing is guaranteed when it comes to forex trading. Even the best forex strategy in the world could come crashing down tomorrow due to an unexpected black swan event.
However, social forex trading is a great way to learn from other traders and stay up to date with what is happening around the markets. This can help you to become a better forex trader yourself in the long run. Just don’t go expecting to become successful overnight.
Making a living from forex can take years of practice and the truth is that most retail forex traders fail. I think a forex demo account is a good place to start implementing what you have learned from a social trading platform. Most of the forex brokers who support social trading will provide a free demo account for you to get started.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.