Making money trading stocks, Forex and other assets used to be reserved for big institutions and experienced professionals. But the internet opened up the possibility for small scale, independent online traders to get into the market place.
But while the door was definitely opened, competing with the big players was still very difficult. Here’s why:
- - Successful trading in Forex, cryptocurrencies and stocks still requires know-how and expertise;
- - Markets change fast and traders need to keep up to date on the latest trends, and this is difficult to do on your own;
- - Successful investment requires a diversified investment portfolio, which in turn requires detailed knowledge in a range of asset classes.
In all of these areas, big institutions have the advantage for one simple reason – many heads are better than one. Traditional trading houses have numerous experts across a range of investment fields, and together they can manage assets effectively to make healthy profits.
Social trading levels the playing field
So, how can individual online traders compete? The answer is to work together on platforms which offer very low barriers to entry into the world of financial trading. And the way they do this is through social trading. As a trading expert from KPMG explains:
Let’s consider what exactly a social trading platform is, then go through some reasons why they are great for online traders.
A quick definition
Social trading can be defined as:
A group of traders sharing their trades live with one another, allowing traders to follow each other, receive feedback on their actions, and copy the strategies of the most successful traders.
And social trading is carried out on a social trading network. These are web-based platforms that bring together traders and investors - some of the best known include eToro and ZuluTrade, while SociumTrade will be adding a new dimension to this market by adding blockchain technology.
How social trading benefits online traders
Here are 7 ways social trading platforms help online traders compete with the investment Goliaths.
1. Sharing know-how
Social trading platforms are like social networks for investment. They give traders and investors ways to interact, share knowledge and build successful trading strategies together. On these platforms, less experienced investors can learn from knowledgeable traders, copying their trades and strategy. Traders can pool resources and share expertise with one another, enabling them to widen the number of asset classes they trade in.
2. Constantly learning
With traditional investment you don’t actually learn much about how the markets work. You trust your money to a fund manager, they invest it, and hopefully you get returns. In terms of learning, at best you can expect the occasional report on your portfolio. In contrast, with social trading you are constantly learning. Traders are constantly sharing their insights, or through copy trading (matching trades made by experienced traders) you can learn how different asset classes perform.
3. Quick access to data
Getting up-to-the-second data on financial markets is crucial for making informed trading decisions. With their social network features - like newsfeeds and messaging - social trading platforms are a great way to get detailed, relevant trading news on the asset classes that you are investing in.
4. Make money from day one
Because social trading platforms are well set up for novice investors, you can start making money even while you’re learning the ropes. Particularly through copy trading, you can put your money to work straight away and learn valuable trading insights. Then as you gain confidence, you can take over more of the decision-making yourself.
Like any social network, social trading platforms are communities. Knowledge sharing and transparency as to what trades are being executed benefits the whole community. For example, experienced traders are encouraged to share their insights by being rewarded for the number of other traders who copy or follow their trades. This means the inexperienced traders get a chance to learn, while experienced traders make extra money thanks to their followers.
6. More objectivity, less personal bias
We all have our biases in life, and investment is no different. It’s natural that you would want to invest into products and assets you have a personal attachment to. But this often leads to poor decision-making and lost revenue. Social trading platforms are a great way to mitigate your own biases because you are in constant contact with other investors and traders, and can follow what they are doing. For example, you might fancy investing in your favourite consumer electronics company, but then check your newsfeed and notice other investors are selling shares.
7. Transparency and accountability
Knowing what decisions traders are making, and why they are making them, is not just a great way to learn. It also helps you decide which traders to trust or copy. On social trading platforms, you can see a trader’s portfolio, track their trading record and understand how much risk they typically tolerate. Because of this transparency, traders are more accountable for their actions on social trading platforms. With traditional trading, the actions of the fund manager responsible for your investments can be ‘opaque’ at the very least - do you really know what they’re doing with your money day in day out? In contrast, Social trading gives you the chance to monitor the trades and actions of those you copy or follow. And if there’s something you don’t like, you can just vote with your feet (or your wallet) and start following a different trader instead.
The future of social trading
Social trading platforms like eToro and ZuluTrade have grown in popularity because of these benefits. But they still have limitations in terms of their transparency, processes and costs.
However, using blockchain technology, SociumTrade is developing a next generation social trading platform. It offers unparalleled levels of trust and transparency, with every transaction recorded on the blockchain, while its smart contracts mean transactions are incredibly fast with no centralised intermediaries.
If you’re keen to get into online trading, or you’re already an online trader and want to experience the future of social trading, sign up to SociumTrade today.