Social trading is trading not based on formal investor guidance given by companies or industry experts. Instead, it is based on a mix of user generated content by influencers and discussion by traders about formally released information. Social trading networks also link traders into social networks so they can discuss their successes, their failures and expertise in general.
The History of Social Trading
Social networks like Facebook, Myspace and Digg started to explode in the late 1990s. You saw discussions on investing along with politics and social trends immediately. Social trading networks began to arise around forex trading networks as many other platforms found that adding a “social” aspect to the platform helped everyone. Social trading really took off around 2010. Social trading platforms are still expanding today because of their value to users and the companies that host them.
Why Social Trading Became Common
First, the addition of a social site to the trading platform kept traders on the site longer, increasing the odds they’d make trades and earn revenue for the site. Secondly, users started answering the questions of other users on how to do things reduced tech support questions and the demand for formal customer service. Then experienced social traders giving advice to new traders is a value-added proposition for the new traders, so sites that can offer that lifeline to new traders have a leg up over those that don’t. By getting kudos from other traders for successful trades, they get positive reinforcement. When they discuss their mistakes, they are receiving advice from others on how to avoid making those mistakes. And unlike the gurus who put out newsletters and hold seminars, this advice is accessible to the average trader.
Sometimes you can see a faster learning curve by seeing the exact trades others are using successfully and then copying it yourself. Many trading platforms actually run the social trading sites in order to retain new traders, since this reduces their need to find new traders. A few social trading platforms like InvestinGoal let you discuss a variety of trading platforms.
The Key Features of Social Trading Platforms
Social trading platforms facilitate information flow. One person posting about a successful trade or concerns about a company can share that information with anyone on the site, instead of the information being limited to the one or two people they may discuss the issue with in person. Social trading platforms allow you to coordinate trades and work as a group towards common objectives. Some social trading platforms provide transparency, allowing everyone to see the stats and positions of other traders. Now you can see for yourself if the person saying they have a winning system is really earning money from their strategy or if they are marketing a system without actually using it. Some platforms balance the desire for privacy and opportunity by showing completed trades but not open trades.
Many social trading platforms are monetised. They may be sponsored by the trading platform so that it builds a deeper relationship with its social traders and can advertise to them at will. Or it may accept advertising from other groups like authors, other trading platforms, investment funds and financial advisers.
Social trading has now become commonplace because it allows trading platforms to market more to their existing traders, retain new traders, create a sense of community that keeps people from abandoning trading, and reduce the need for technical and customer support. Social trading platforms share key features like the ease of sharing information and advice, though not all share the same amount of information about each trader with others on the site.