Social trading: the latest way to trade?
As of 2019, the average daily social media usage of internet users worldwide amounted to 144 minutes per day, up from 142 minutes in the previous year. Given the whirlwind year that 2020 has been, with so many people stuck at home, it seems likely that the most recent data will be even higher.
Social media provides a useful way for us to keep in contact with friends, share information and become part of a virtual community. And now, we are seeing traders turn to social trading – an approach that enables investors to follow their peers and expert traders, often resulting in copy or mirror trading.
A few years ago, a World Economic Forum report described social trading networks as disruptors which “have emerged to provide low-cost, sophisticated alternatives to traditional wealth managers. These solutions cater to a broader customer base and empower customers to have more control of their wealth management,” and “pose a tangible threat to the traditional practices of the wealth management industry”.
It is true that social trading requires little or no knowledge about financial markets which can be a huge advantage given trading can be intimidating to the less experienced.
Yet social trading can work equally well for both beginners and experienced traders. Novice traders can gain exposure to the markets while learning, and – crucially – shorten the learning curve by following expert traders who can provide valuable insight. Experienced traders, meanwhile, can save time by getting a clear view of the market, without having to perform daily research.
Social trading also provides an opportunity for regular traders to expand their trading, gaining exposure to assets they may not normally trade. Then there’s the convenience factor: the ability to automate means traders can even set everything up, then go and do something else with the assurance that they will still be following the strategies of those they have identified.
In a year when real life social contact has been a challenge, social trading provides an opportunity for brokers to network with a group of like-minded traders, chat with friends and receive direct access to market opportunities while getting continuous real-time updates about friends and experienced traders to see what they’re doing. Traders can simply copy trading signals or comment, share and engage in the community. Some social trading solutions even let traders celebrate their success with images to post across multiple social media networks – ultimate bragging rights.
The rise in social trading comes alongside new risk management tools helping new traders to confidently try out online trading. These tools offer an added layer of protection with some, such as AvaProtect, providing total protection against loss for a defined period for a small cost – similar to the premium on an insurance policy.
We know that 2020 has seen an increase in new entrants to the trading market, many attracted by the volatile market conditions we’ve witnessed this year. Social trading is an obvious route for those wanting to give it a try.
Personally, I’m looking forward to a more sociable 2021. But in the meantime, I’ll be returning to social media to get through the festive season and I’m sure we will see social trading continue to grow in popularity.