In today’s world of social networking, forex social trading is the best way to trade currencies. This method allows traders to converse and share ideas. As a result, beginners with little to no understanding of the currency market can learn from expert traders. But is a social trading app still effective in 2021?
Yes, it is. The advantages of social trading are pretty clear – you can evaluate trade histories of hundreds of other traders, pick out the most successful ones and copy their strategies. In other words, it offers investors a chance to make profits without necessarily analyzing forex reports, reading charts or understanding trends.
The flip side of social trading is that it also opens investors to the risk of following other investors who may not always be successful in their trades. If you copy someone’s strategy and then that person makes a loss, you will also make a loss. But for what it’s worth, no trader is always successful.
What Is Social Trading in Forex?
To put it simply, forex social trading is a form of investing where currency traders connect, share ideas and learn from each other. In the process, beginners get the opportunity to copy and mirror trades from their more experienced and successful counterparts.
Think of it like other social networks (Facebook, Twitter, Instagram etc.) only that instead of sharing selfies, coffees and lunches, traders share strategies and ideas. As an investor, you basically use the social trading platform to find (professional) profitable traders with good track records. From there, you can simply start duplicating their strategies for similar success. And you get to learn from them along the way.
Say, for example, that a professional trader whose strategy you’re duplicating opens a forex trade worth $20,000. If you have the same account balance, then their trade will be automatically duplicated in your trading account.
What if your account balance is less? Well, the best social trading app or platform will allow you to scale down your bid. Thus, if they open a trade worth $20,000, you can still duplicate their strategy but with $10,000 (or any amount that you’re able to bid).
Needless to say, your profit will also scale down in the same proportion. Therefore, if the professional trader makes $2,000 from a $20,000 trade, you’ll make $1,000 from your $10,000.
Reasons Why Forex Social Trading Is Still Effective In 2021
As you can see from the example above, forex social trading is effective. For one, it helps you to earn passive income. More importantly, it can be an excellent tool for building a trading community from which you can learn. Ultimately, you’ll be able to create your own forex trading strategies and share them for some reward (usually monetary).
Below are additional reasons why forex social trading is still effective in 2021.
1. It creates a pool of knowledge
Thanks to social trading, investors in the forex market get the chance to directly associate with thousands of other investors. That interaction enables discussion of viewpoints and sharing of ideas among novices and experts. If you’re a beginner, you get as many people as you will possibly need to learn from.
It’s comparable to Twitter and news. If you have an account there, you can view all kinds of news from professional journalists, freelancers and enthusiasts. It all depends on who you’re following. In the case of trading, novices get to learn how expert traders come to the decisions that they make.
And while at it, they can keep copying trades made by those experts until they (novices) learn how to create effective strategies. Therefore, forex social trading platforms make it possible to earn money from the get go.
2. It’s easy
This is probably the biggest reason why social trading is effective in forex. Most potential investors don’t have the time and/or skills necessary to do their own analyses of currency markets. For that reason, they rely on seasoned traders to create winning strategies that they can emulate. It’s essentially forex trading for dummies – you don’t need to have the first clue about the markets in order to make a profit. You, however, need to know a few things:
- Signals and tips: these are basically (reliable) triggers to either buy or sell a currency. They’ll give you the market position to follow should you want to (when you don’t want to copy a strategy). The All Markets Trading System provides daily forex signals that you can use to trade currencies.
- Copy trading: this involves copying the trades of other more successful investors. Using daily forex signals to trade is the second-best option for a beginner in the forex market. Your first choice should always be copying the strategies of seasoned traders. The best social trading platform will suggest traders for you to follow from the leader board. Most will also have restrictive control over your follow activity so that you don’t follow a trader blindly. From there, you can simply go ahead and copy the traders of an investor who frequently wins.
- Profiles and forums: a good social trading app or platform should display traders’ profiles complete with their biographical info as well as their trading styles and number of open and closed trades. This will help you to decide whether a trader has the necessary experience and winning streak that you can copy.
Forums, on the other hand, give traders the opportunity to talk to each other. Keep in mind that social trading platforms provide – among other things – forex trading for dummies. It’s by talking to experts that you can learn and graduate from being a novice to an expert.
Combined, signals, copy trading, profiles and forums make social trading an effective tool for finding strategies, implementing them and learning how to create your own. In other words, they make forex trading a breeze.
3. Removes personal biases and enhances objectivity
The fact that you can consult experts means that you won’t be trading as an individual. When you’re alone, oftentimes you’ll judge trades with bias. Additionally, you’re more likely than not to react with emotion when you find yourself just marginally in a losing position. That almost always results in an even bigger losing position.
If, however, you talk it out with others, you’ll remain more objective and can stay level-headed. Plus, it will be easier to discuss and analyze the forex market even before you make decisions. This opportunity to discuss, consult and get ideas only comes with forex social trading.
4. Social trading creates a support system
One reason why forex social trading works is because it gives people a chance to interact. Otherwise, online trading can be a very lonely and frustrating place if you don’t have people to talk with. The contrary is also true. If you have online trading “friends”, then it means that you have a personal support system to go to when things are not going your way. Alongside emotional support, they’ll also give you ideas and strategies that may help you improve.
5. Builds confidence
Finally, forex social trading is still effective in 2021 because it builds traders’ confidence. Again, we can call it forex trading for dummies because the biggest beneficiaries are typically beginners. By copying trades from experts, you put yourself in a winning position. And the more you win, the more confident you grow.
How to Improve Your Chances of Success in Forex Social Trading
1. Choose a good trading platform
You’re spoilt for choice when it comes to social trading platforms. However, not all of them offer the same thing. As such, some are much better than others.
Ideally, you want a platform that:
· Has many users who are strategy provides. This acts as proof that the platform is being used successfully by other traders.
· Gives you the ability to start and stop copying strategies any time you want. This indicates that you’re fully in control of your funds.
· Full transparency. The platform should allow you to view all your trading activities. You should always know where you have invested your money at any given time.
What is the best social trading platform? Use the All Markets Trading System for daily forex signals as well as copying trades. Apart from that, eToro and ZuluTrade are worth checking out as well.
2. Choose the right strategies
When copying trades, the strategy you choose to copy doubles up as your risk management plan. In other words, you’re choosing that strategy because it has a potential for low risk and high returns. You’ll want to check that the strategy has been consistently profitable for a while now.
Which brings the question of the age of that strategy. Ideally, you want one that has proven itself over time. It would make little to no sense to copy a strategy that’s barely a week old. If you do copy it, then you’ll have taken up a high-risk strategy.
Speaking of which, always try to make sure that your risk profile matches that of the strategy provider. What can you see from their profile? Do they like taking very big risks in expectation of big rewards? If you copy a strategy from someone with such a profile, then be ready to see big losses. But if you’re afraid of big losses, then consider following traders who seem risk-averse.
As far as following traders, make sure that someone has enough info on their profile for you to work with. The more you know about a strategy provider and their strategy, the better your decision-making process.
3. Spread the risk
If you risk 100% on one trade, you stand to lose the full allocation if that trade loses. On the other hand, if you divide your allocation into portions of 20 or 25% and risk each portion in a trade, you essentially spread the risk. That’s because there are bound to be some trades that will gain. Your loss won’t be as big as allocating the full amount to one trade and then it loses.
When all is said, forex social trading is an excellent to generate passive income. It reduces the element of risk because beginner traders can simply duplicate winning strategies that are used by experts. Besides, it offers novices the chance to learn from professionals.
However, it does come with its set of disadvantages. Top on the list is the fact that there’s still the possibility of a loss if you copy a wrong strategy. Even perennial winners lose at times, and it’s very much likely that at some point a seasoned trader’s strategy will be a losing one.
That said, with proper due diligence you can pick the right strategies more often than not. But if you’re not confident about your ability to copy the right trades, be sure to use the All Markets Trading System to automatically copy trades and receive signals. It will automatically pick the very best strategies for you.