Home Insights & Advice The evolution of social trading

The evolution of social trading

by John Saunders
13th Jan 22 10:51 am

Social trading has come a long way in a short space of time. As the name suggests, it’s a particular way of investing money that involves communicating with professional traders and following their trading strategies in order to benefit from their astuteness. Especially suitable for beginners, social trading allows people to access the financial markets with only a rudimentary knowledge of how they work. It means they don’t have to fork out money for financial advice or spend hours of time educating themselves.

The roots of social trading can be traced back to the earliest days of the internet, when email and the first online trading platforms arrived on the scene. Its beginnings were quite unintentional, with professional investors simply sending messages to others to notify them when they’re about to open a trade. They’d send the details of their position via email, and their privileged followers would be able to follow it.

Traders would do the same thing when it was time to close on that trade, sending a second email to notify their followers when it’s time to do so.

The system worked reasonably well for some, but as more people caught onto the idea of following professional investors and mirroring their trades, there came the realization that greater efficiency was needed. Email is very slow compared to the rapid pace of most financial markets. People might not check their messages for several hours, and those delays mean they could easily miss an opportunity in a trading world where every second counts.

The shift to chat rooms and automated copy trading

The demand for a more efficient means of relaying trading signals gave birth to the very first chat rooms on online trading platforms. These private rooms quickly became hotbeds of discussion, where traders would share their insights and exchange views on new tips, strategies and any other information they possessed. It was a revelation at the time, giving users instant access to signals and allowing them to take action on them immediately.

Chat rooms were the first concrete step on the way towards realizing today’s concept of social trading. Though they provided a more efficient way for people to follow pro traders, they were far from perfect. One major downside was that users were required to monitor the chat rooms at all times so as not to miss out on a new signal. Once a trade had been opened, an investor would have to check their feed constantly for the signal on when to close that trade. Another issue with chat rooms was the cost, with many pro traders charging high fees for people to join.

Those imperfections led to the creation of what was arguably the world’s first-ever automated trading platform. In 2005, the brokerage Tradency announced its Mirror Trader service, which would generate automated signals for traders that were based on the moves made by the most profitable traders using the platform. Users were able to follow their preferred traders and receive instant notifications of the actions they took. A little later, Tradency introduced a feature that allowed users to copy those trades in real-time.

Tradency’s first copy trading platform was a big hit and the concept spread like wildfire to other trading platforms as it provided a way for novice traders to access the financial markets without needing to analyze them. Even so, the first copy trading platforms were still missing one key ingredient – the social aspect that allows professional traders to communicate with their followers.

The birth of true social trading

The need for social tools is what inspired the first true social trading platforms. Founded in 2015, NAGA was at first just another online brokerage platform with copy trading features. However, its founder Ben Bilski quickly hit upon the idea of merging copy trades with social media, and in 2017 launched its revolutionary Popular Investors feature that, for the first time, allowed professional traders to create detailed profiles and communicate more effectively with their followers.

The concept had the impact of boosting trust and transparency for copy traders on the NAGA platform, and was quickly improved upon by eToro with the launch of its unique news feed, modeled on Facebook. With this, eToro users were finally able to communicate with the traders they follow and post comments, ask questions about a trader or their strategy, while Popular Investors would receive notifications whenever a comment was posted.

NAGA responded with its own individual news feeds for traders, adding features such as the ability to filter their posts by comments and trades. What really took social trading to the next level however was the debut of NAGA’s core Autocopy tool, providing a way for traders to copy transactions in real-time for just $1 per trade, with guaranteed price execution. It meant that social traders would never miss out on a profit-making opportunity again, while smart investors could receive compensation for their hard work with 35% share of all copy fees they generate.

With NAGA’s Autocopy, and eToro’s similar CopyTrader feature, the modern concept of social trading was born, followed by a wave of similar platforms and a huge surge of interest from beginner traders.

The next stage of social investing’s evolution remains to be seen, but neither eTore nor NAGA are sitting still. eToro for example recently became the first social trading platform to add metaverse assets such as NFTs to its trading portfolio. As for NAGA, one of its most recent innovations was the launch of its own cryptocurrency, NAGA coin, which integrates with its digital wallet, allowing traders to pay reduced copy fees, while skilled investors will be able to increase their rewards. Ultimately, NAGA coin is expected to enable new DeFi features and incentivize more users to participate in its ecosystem.

With the innovation in the space showing no signs of slowing down, it’s clear that the story of social investing is only just beginning to unfold.

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