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Social Trading Explained; The Fundamentals And Why It Could Be The Future

The art of trading in the financial markets is one the most sought after skills in the 21st century. Today, multiple market ecosystems vary from the stock market, indices, commodities, and the latest kid in the block, crypto. All these markets offer trading environments that feature various assets, allowing traders to go long or short. However, in most cases, only about 5% of traders manage to beat the market. 

This narrative is now changing following the invention of social trading, a form of investing which allows traders to copy the trading patterns of their peers and experts. Ideally, it complements the information provided by fundamental and technical analysis. 

Social trading was first introduced in 2010, with eToro being one of the pioneer social trading platforms. Since then, several social trading platforms have come up, featuring traditional markets and nascent ecosystems like crypto. 

What is Social Trading? 

Unlike fundamental and technical analysis, social trading analyzes financial data by tracking how other market participants are trading. This form of market analysis functions similarly to social media influencing, with the only difference being the underlying product. Expert traders share their trades for newbies in social trading to replicate or modify according to their risk profiles. 

This new approach to financial analysis reduces the learning curve of novice traders, allowing them to start earning early in their trading careers. By copying or modelling expert trades, traders can evaluate which strategies work best for them. Furthermore, this information can be combined with fundamental and technical analysis to make informed investment decisions. 

Notably, social trading has also led to the emergence of online trading communities. These informal groups work collaboratively by copying or mirroring a few experts within a specific network. In doing so, all the participants have an opportunity to improve their trading performance as they share ideas and information. 

A Social Approach to Market Analysis  

Before the inception of social trading, traders only relied on fundamental and technical analysis. While both approaches have been tested and proven, the emergence of social media created a new niche to integrate more data for decision making. As a result, social trading has changed the landscape for traditional market traders and crypto traders. 

Crypto derivatives exchanges such as Bingbon feature a social trading platform where users can copy or mirror trades. This crypto exchange is one of the platforms that have integrated a social trading feature for crypto users. In addition, some of the crypto services offered by Bingbon include a spot and derivatives exchange with up to 150X leverage for the BTC/USDT pair. 

With Bingbon’s social trading platform, crypto traders can copy or mirror trades made by experts. The exchange’s intuitive user interface enables registered users to follow and automatically copy trades executed by hundreds of expert crypto traders. In return, the traders who share their trading strategies get 8% of the profit made by those who copy or mirror their trades. 

Besides exposure to the crypto market, Bingbon features traditional market commodities such as silver, gold and crude oil. In addition, traders can also speculate on the prices of major equity indices, including NASDAQ-100, S&P 500 and Nikkei 225. 

Is Social Trading the Future? 

Just like the rise of social media influencing, could financial markets be moving in the same direction? Well, many factors are at play, but it’s slowly becoming evident that more people are pivoting to social trading as an alternative analysis tool. 

This paradigm shift has been noted by both scholars and international NGOs such as the World Economic Forum. The latter published a report in 2015 describing social trading networks as potential game-changers, stating that these ecosystems, “have emerged to provide low-cost, sophisticated alternatives to traditional wealth managers. These solutions cater to a broader customer base and empower customers to have more control of their wealth management.”  

In crypto, where volatility is an everyday occurrence, social trading networks propose significant value. As a result, up and coming crypto exchanges that feature social trading networks are now positioning themselves as the go-to platforms for newbies looking to copy expert traders. This trend will likely continue as the market grows bigger. 

Wrap Up  

Trading began as early as civilization discovered that goods could be exchanged based on their underlying value. This form of trading was popularly referred to as barter trade, but it would later evolve following the inception of coins and notes. Many centuries down the line, people are trading sophisticated market instruments for both investment and speculation purposes. 

Going by this evolution, one thing is clear; the markets are here to stay. The only thing that changes are the products and trading strategies across civilizations. Currently, social trading fits today’s model, where most adults globally use social media platforms to communicate. So it comes as no surprise that traders are now leveraging this infrastructure to create professional trading networks. Soon, it could be an automatic complement to fundamental and technical analysis.