What to Consider When Choosing a Social Trading Platform

One of the biggest disruptors of the financial investment industry has been the development of social trading. By combing the popular platforms of online trading and social networks, traders can now study other traders rather than different instruments and markets when deciding on their next trade. Social trading platforms have drastically cut the initial learning curve for trading with the transparency of the platforms which allow users to see what trades are being made by expert traders and allowing you to mirror their trades.

You can now simply search and study the top traders in your social trading brokerage and after finding a successful trader that meets your own trading style, you can simply elect to “copy” the trader and the same exact trades that are made by the expert trader will be made by you, to the amount you have chosen.

Because the trading strategy relies on being able to find another successful trader that has the style that suits you, the bigger the social trading platform you choose to go with, the better your chance will be of finding one. The list above compares the top four social trading platforms available in 2016 and will offer you the best possible pool of expert traders to copy. Tradeo and eToro both have extremely user friendly platforms and are a popular choice for traders looking for a copy trading platform.

Variables to Consider

Of course, not all social trading platforms are alike and some will offer distinct advantages over others. Nonetheless, their basic functionality can be broken down into several core areas.

What are the instruments traded?
This is perhaps the most obvious question, for each trader will have his or her own sector of choice. Some will prefer currency pairs while others could choose precious metals or major indices. Most platforms will make this variable extremely clear.

Which currencies are accepted?
This is critical from an exchange point of view. Some will only deal in dollars while others will accept the euro, the pound and other currencies. In general, the largest platforms provide the widest number of options.

What are the minimum and maximum deposits?
Some social trading portals will accept figures as low as one hundred dollars while others will set their minimum considerably higher. From a budgetary standpoint, this feature is very important.

What are the management fees and what is their commission structure?
Again, these will both vary between different providers and different schemes will naturally be encountered. Depending upon one’s needs, there will generally be an appropriate commission structure that is available.

How broad is their range of investments?
In other words, what underlying assets are present? Larger companies can offer up to eighty different assets and indices to choose from. Along these same lines, how diversified is this asset list? Ideally, a social trading platform should cater to the needs of every trader. Thus, it will contain areas of interest such as:

  • Commodities
  • Major exchanges
  • Forex positions
  • Blue-chip companies

A well-balanced asset portfolio allows for a flexible trading position.

Does the platform offer a robust amount of trade history? Investors learn from their previous experiences and they should be able to view their full history. While some systems only allow the individual to observe a certain number of past trades, it is best to seek those which offer a full longitudinal perspective.

Is a demo account provided?
It is always wise to appreciate how a social trading site operates before committing to a membership. Most of the respectable platforms will offer a demo account for a certain period of time. Understanding the unique metrics that each has to offer is critical in making the correct decisions.

Is there a mobile application available for download?
As more traders are now choosing remote devices, it is always wise to opt for software that is compatible with a smartphone. While this is a rather new trend, many major systems have already adopted this amenity.

eToro

How often are the payouts and what fees (if any) are involved? Most platforms will allow for a payout at least on a monthly basis and some offer weekly withdrawals. Still, any fees need to be taken into account; these can affect overall profit margins.

Which payment methods are accepted?
It is wise to only choose those sites which provide well-known transfer services, for the levels of security and encryption are robust. Otherwise, the user may place his or her personal information at risk.

Are there active forums that members can access?
Much of the expertise that will be developed arises from real-time interactions with similar traders. It should be known that these portals are called social trading platforms for a reason.

Finally, what levels of customer support are available? Ideally, there should be multiple forms of contact such as email, a dedicated telephone number and a live chat widget. Representatives must be experts in their field and this service should be available twenty-four hours a day.

The Critical Importance of Regulation

Just as with a “brick-and-mortar” broker, each site must boast (and clearly display) their relevant regulatory body. Whether this refers to the FSA, the SEC or the European Securities and Markets Authority (ESMA), such supervision will lend to higher forms of transparency. However, the benefits here go far beyond clarity alone.

There have been some social trading portals which have not been duly registered with any authoritative body. In the event that the client has a grievance and he or she feels that a discrepancy has taken place, there is little chance for financial remuneration. In other words, there is no protection against unscrupulous platforms. So, it is always a good idea to make certain that the provider in question is registered with the relevant body and this certification is current.

Social Trading Vs. Standard Trading Platforms

Due to the surge in members during the past few years, it is only natural to ponder why social trading systems seem to be at the vanguard of online investment. Indeed, there are some very valid reasons behind this shift.

First, we should understand that these are excellent systems for beginners to use. As they are quite flexible in their nature, they can cater to a wide audience. Many contain training tools, expert advice and a growing number provide account supervisors (generally with high-level accounts) that will help to actively manage one’s position. If we combine these traits with easy-to-use dashboards, access to help and the ability to speak with other traders, it is easy to see why beginners enjoy these systems.

Volume is another key point. Higher volume equates to higher liquidity and thus, greater chances of accruing a healthy profit. Traditional platforms are seen to be lacking in this arena and thus, social trading may very well offer chances of high returns. However, it is also important to note that a greater amount of liquidity may also equate to a higher loss.

A greater range of underlying assets is another feature which is associated with this volume. Seen as “adding another string to the bow”, more choices will accommodate for discrete tastes. Additionally, traders will have an increased ability to offset high-risk positions (such as currency pairs) with more conservative approaches (such as a commodities trade).

As mentioned previously, many social trading sites have higher levels of customer support than traditional services. Perhaps more importantly (and due in no small part to the number of participants), there are also more representatives which are available at all times.

Larger social sites tend to cater to different locations from around the world. So, they can be accessed twenty-four hours a day; even when local markets are closed. Such unfettered access is key for those who wish to perform trades in a variety of fiscal sectors.

Flexibility is a final feature that currently defines social trading platforms. In this sense, we can define flexibility as the possibility to choose minimum entry levels, select the size of a position, customise one’s virtual “dashboard” and set buy and sell limits. With such a wealth of choices, experienced traders are likewise attracted to the numerous tools that are available.

All Under One Roof…

These are some of the key takeaway points that should be recognised when considering social trading platforms. Of course, there are always some key variables that need to be kept in mind. By knowing what to look for and understanding the benefits when compared to a traditional trading service, the best choices can be made at the best times. The end result could be a tidy profit and greater experience in this exciting industry. Thanks to the power of the Internet, it has never been easier to become involved and enjoy such a potentially lucrative field.