eToro
By eToro
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4 Reasons Social Features Benefit Online Traders

If you’re thinking about getting into online trading, or already are an online trader, you might want to consider social features, and here are four reasons why

The Internet revolution has done a lot for our society, enabling people everywhere to access information and tools that were previously unattainable. Moreover, it has blurred the lines between professional know-how and skills acquired online, and has enabled people from around the world to learn, and become adept in fields that were previously the realm of professionals. One such field is the stock market, which was once restricted to professional brokers, but today is available to all.

While you still require a broker’s licence to trade on the stock market, online trading is done using Contract For Difference (CFD) instruments, wChhich basically enable traders to make transactions based on price changes without buying or selling the actual stock. But the web has more to offer than just access. The power of social media and the wisdom of the crowds have added a whole new aspect to trading, which relies on different traders sharing their wisdom, experience and trading habits. Here are four reasons to use social features when trading online:

1 – Education

Getting good information is paramount for making smart investment decisions. While information such as graphs, charts and professional analyses have been around for decades, the social aspect adds a new kind of information that is relevant for online traders. In the past few years, more and more trading platforms have added social elements such as a news feed and direct interaction between traders.

This gives traders the ability to both communicate their thoughts and experience, and gain from each other’s knowledge. While definitely not a replacement for “standard” data, the social aspect enables people on each platform to get more specific data from fellow traders, and the personal touch could contribute to an enhanced sense of security when making an investment decision.

2 – Transparency

Another way of obtaining relevant information is following the trading habits of other investors. On some platforms, each trader’s portfolio, track record and risk factor are available for all to see. This means that when another trader wishes to refine their own trading style, they could look at other investors and get ideas for diversifying their portfolio, popular assets and trading tactics.

Additionally, the psychological element of transparency might cause investors to be more careful and reduce risk when trading. As some platforms offer investors the ability to copy other traders, and rewards those with many copiers, investors who wish to be copied could develop low-risk strategies, in order to get more followers while still making money.

3 – Diversity

The age-old mentality of not putting all of your eggs in one basket applies to online trading. Many investors say that diversifying your portfolio is key for reducing risk. The logic is simple: When you invest in several assets, if one or two of the assets you invested in loses, you won’t lose everything. However, diversity also requires knowledge, and many traders don’t have the time to start looking into graphs and charts for each and every asset.

However, when they have access to other trader’s portfolio, and can read their posts about the reasoning behind a trader’s decisions, they could more easily choose which assets to invest in – including ones that they are less familiar with.

4 – Saving time

Automation is not new in the world of trading, with orders such as “stop loss” and “take profit” existing long before the online revolution. However, there’s no automation for decision making – that has always been done by people. And yet, as mentioned before, some platforms enable users to copy other traders, attaching a certain amount of their funds to another investor’s portfolio. This option is good for people who either feel as if they lack experience, or simply don’t have enough time to constantly check how the market is doing.

Coupled with the aforementioned transparency and diversity advantages, copying other traders becomes more accessible, as an investor’s history and portfolio are available for all to see. Therefore, inexperienced traders know that some of their funds are in the hands of people who have more experience and a proven track record.

* All trading involves risk. Only risk capital you’re prepared to lose.

* Past performance does not guarantee future results.

*This post is not investment advice.

 

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