What is social trading?
Social trading, also called mirror trading or copy trading, is a concept that involves automatically copying or mimicking the trades of other winning traders, who are able to replicate consistent results over a period of time. We generally refer to these traders as 'lead' traders.
As the lead trader places a trade, that same trade is opened and managed automatically on your own trading account.
Benefits of social trading
It is a good first step into trading as you can grow your capital safely while you learn.
It also allows you to grow capital even if you have very little time to learn or make investing decisions yourself.
You can also diversify your risk across several lead traders limiting losses if a certain lead trader or another investment performs poorly.
Benefits for a lead trader
Lead traders benefit by generating further income, which is why they become lead traders and allow others to copy their trades.
Once you gain enough skills and experience to become a lead trader yourself, you can receive payment from a broker based on the volume traded by your followers – different brokers offer different incentives.
Concerns of social trading
There are some things that you will learn to avoid or deal with. For example, looking out for a lead trader that risks far too much on their trades and avoiding you being exposed to the same risk. Or learning how to cut a lead trader from your portfolio if they lose their edge and become unprofitable.
However, as a first step into trading, we teach you how to follow someone else.
So far you have learned that ...
- ... social trading is a process that allows you to follow trades placed by winning traders and duplicate the results directly on your trading account.
- ... social trading allows traders to benefit from the experience of winning traders while they are learning.
- ... following a lead trader can also have the benefit of diversifying and offsetting losses in periods of poor performance from other investments.
- ... concerns of social trading involve a lead trader risking too much or becoming unprofitable.