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Social trading; A market analysis tool for financial markets

by John Saunders
12th Jul 21 8:51 am

The evolution of financial markets has brought about many opportunities, amongst them being the art of trading. This activity is popular in mainstream markets such as the New York Stock Exchange (NYSE) and upcoming ones like crypto. However, it is a constantly evolving art, with stakeholders introducing new market analysis tools to increase their profitability.

One of the latest market analysis tools to debut is social trading, a form of investing that allows novice traders to follow experts and copy or mirror their trades. Essentially, this form of market analysis leverages the social aspect of today’s world to introduce a community of traders whose goal is to share market ideas and information.

Unlike fundamental and technical analysis, social trading takes into account the trading activity of profitable traders, creating an environment where one can replicate their moves. This complements fundamental and technical analysis, while in some successful cases, it somehow eliminates the need for traditional analysis tools.

The art of social trading

Social trading is barely two decades old but already making significant changes for financial market traders. Today, a new trader does not have to get it right on the fundamentals or technicals for them to be profitable. Instead, they can choose to replicate expert traders by trading on platforms that support social trading. This arrangement reduces the learning curve of newbies posed to get valuable ideas and information from the experts.

To put into perspective, social trading follows a similar concept to influencer marketing. Ideally, expert traders share ideas or information with other traders, although it is slightly different from influencer culture, where stakeholders seek to promote a product. In social trading, the goal is to share trading strategies and market information in return for incentives such as a percentage of the profits made from copied or mirrored trades.

Social trading has since gained popularity across most of the existing markets. This form of investment analysis is now being used for trading market instruments ranging from indices, commodities, stocks and cryptocurrencies.

Social trading platforms

Having explained this concept, let’s dive into some of the leading social trading platforms to better understand the value proposition in trading financial markets.

1. Bingbon

Bingbon is a crypto derivatives exchange that features a social trading platform for veteran and new traders. This crypto derivatives exchange allows traders to follow experts who make profitable trades. The platform’s intuitive and seamless UI supports a ‘copy trade’ function where one can browse and follow expert traders. Even better, Bingbon has integrated an automatic copy feature that automatically enables traders to copy or mirror a trade.

Bingbon also offers a demo trading account for new traders, crediting 100,000 VSD tokens to begin practising. This token can be traded on Bingbon with access to leverage on both spot and derivative pairs. The platform provides up to 150X leverage on the BTC/USDT pair while offering a slightly lower margin on other pairs. Notably, Bingbon’s social trading feature is available for other markets, including commodities such as gold, silver and crude oil.

2. eToro

eToro is one of the earliest social trading platforms, having made a debut back in 2010. The platform has grown into an industry leader, featuring customizable options for traders to enhance their experience. This social trading ecosystem has integrated a ‘feeds’ function that operates similarly to social media platforms. Traders can share their views, ideas and engage with peers to better analyze the market.

Combining the social trading platform with its advanced tools, eToro exposes traders to over 1,000 assets offering competitive rates and fees. Traders who leverage this platform have an opportunity to trade stocks and contracts for differences (CFD), amongst other market products featured in traditional financial markets.

3. ZuluTrade

ZuluTrade is another pioneer social trading platform with a focus on the forex market and binary options. The platform was founded back in 2007, evolving to provide a social trading ecosystem for the growing forex market. ZuluTrade’s social trading feature enables top traders to provide signals to their followers. In addition, the followers can also read comments left by previous investors.

This social trading platform has also introduced a transparent profit-sharing plan where traders get 20% of the profits while ZuluTrade bags 5%. Meanwhile, traders only compensate signal providers for profitable trades, creating an incentive mechanism for top traders to share the best strategies.

4. NAGA

NAGA was founded back in 2015 to decentralize finance and provide the best tools for market analysis. The platform features a social trading platform where users can trade financial market products, including forex, real stocks, CFDs, ETFs, futures and cryptocurrencies. NAGA also provides users with a crypto wallet, exchange and leverage on trading pairs on the crypto front.

Summary

Going by the trends, social trading is gradually becoming a big deal in trading financial and commodity markets. This new market analysis tool complements the existing gap in fundamental and technical analysis in an era where social media dominates most interactions. We have seen prominent figures such as Elon Musk influence the market by mere tweets; some traders are making a killing by simply following the billionaire’s tweets.

However, making profits from social trading is not always guaranteed. In essence, traders who copy or mirror trades accommodate the same risk as an expert trader, which means that they also stand to lose their money in the event where a signal provider is wrong. That said, it is more prudent to combine social trading with existing traditional analysis tools to maximize the potential profits while minimizing risk exposure.

 

The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.

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