Social trading might be drawing the iron curtain of successful trading with the free flow of unencumbered information between individual investors. But is it really a magic formula to make everyone a successful trader? Here’s 5 things we think you should know more about when before embarking on your social trading voyage.
1. Social trading is not a new concept
Trading has always been a social activity. The ‘social’ refers to the need to acquire information and gain knowledge from others. In the past, when the internet and electronic trading is not as common as it is today, people relied on newsletters to follow successful traders.
2. Easy exchange of financial information
Instead of relying solely on fundamental and technical analysis, social networks enable investors to tap into the collective financial wisdom of their peers to make more informed investment decisions.
3. Traders on social trading platforms are not inferior to institutional traders
Institutional traders may have the advantage of premium financial information at the earliest possible time. But with social trading, people too can get real-time access to such information.
4. Do not ditch your financial advisor and wealth managers
Social trading is for the self-directed investor to manage their own money and learn from a community of like-minded people. For the same reason, your wealth advisors will also be able to give you insights to other aspects of wealth management.
5. Following Top Traders alone is not a sure-win strategy
Many factors come into play when following a good trader. Mimicking trades is a good way to learn his strategies but it is always never a good thing to follow blindly. For a start, your risk appetite might not be the same as his.
An important lesson of what the financial crisis has taught us is no one is more responsible for our own money than ourselves. At the end of the day TradeHero and other social trading platforms are communities, and the more you put in the more you get out.