Last Updated on September 1, 2020 by Jason Wilson
Forex trading, as you undoubtedly already know, is generally based on the use of several types of analysis such as technical analysis and fundamental analysis, but have you heard of social trading?
If your answer is “no”, it is time for you to learn about what social trading actually is and why it is considered superior to other, more traditional apprenticeship methods.
Social trading: What is it?
Social trading is a practice born following the advent of online trading. Indeed, whereas before traders had to use communication methods such as the telephone and fax, today everything mainly takes place online through the internet. The flow of information available to all has radically changed the investors’ methods of trading; they are no longer alone to take decisions but rather can exchange information and advice freely with other traders, both more and less experienced.
With this growing “socialisation” in the trading world, some brokers such as eToro decided to participate and generate automated social trading.
The changes implemented by online trading
Due to what is commonly known as web 2.0, traders can now share their operations with the entire world and can also consult the trading methods of other investors, both individual as well as professional.
The fact that all information has become transparent and can be studied and analysed, then used by everyone, allows a type of mutual assistance between investors from which came a communal trading through online discussion forums to give one example.
The different operations completed on the Forex can in this way be explained by their instigators and so help other traders to understand why one investment succeeds and another fails.
Social trading: A truly different trading tool!
Following these positive results, certain brokers decided to implement tools allowing the use of social trading directly from inside the trading platform. The first to implement this system was the broker eToro who launched OpenBook in 2010. The principle of OpenBook is in fact entirely based on social trading as each subscriber that trades on the platform can share their trades and consult the trades of other investors, without communicating the amount of money invested or gained.
Thanks to this flow of information, it is easier to know how to adjust positions in accordance with the positions of more experienced traders. These adjustments can be made manually through spotting interesting trades and using them to implement your own strategy, or completed entirely automatically by making the same trades as another trader judged more experienced or profitable.
What is the point in social trading?
Although social trading can be useful for more experienced traders, it also offers beginner investor a unique chance to make profitable investments quicker while learning about Forex trading in a practical manner by following trades completed by expert investors. In this way, it is in fact easier to understand how and why the experienced traders place their orders with only a very basic theoretical understanding. In addition, traders can communicate among themselves and ask questions or advice from other investors on the platform.
It is important to indicate that the first results communicated by the broker eToro are highly encouraging as the gains recorded overall by the traders using OpenBook are vastly superior to those generated through traditional trading.