Social trading advantages
Social trading is a disruptive concept, intended to present an alternative to the traditional financial investment model. When we say “traditional” we refer to online retail traders going up against the market alone, armed only with charting tools and their own personal insights, as opposed to the institutional investment model. You see, professional investment companies had figured out long ago that a team of traders is better than one. What social trading does is give regular online traders the same advantages that institutional traders have enjoyed for a long time, and more.
A Group is More Knowledgeable than an Individual
Prices in the financial markets are influenced by the actions of many individual buyers and sellers. Each one influences the price a little. The aggregate outcome, however, determines price increases or decreases. So what an investor should really be trying to predict is how the majority will act. Will more people buy the stock or sell the stock? The answer lies in networking, because the wisdom of the crowd tends to be more accurate than the wisdom of any individual making up that crowd.
Exposure to diverse ideas
Even the most experienced trader can’t think of everything, but a group of diverse experienced traders actually can. When trading alone, it’s easy to become attached to your own views and ideas about where the markets are headed and what’s about to happen, to the point of irrational behavior in the face of actual market movements. Being exposed to other traders who see things differently opens you up to other possibilities, other investment opportunities, and maybe makes you less attached to your own preconceptions.
You may be satisfied (or not) with your own strategy, but you’ll never know if there’s a better strategy out there unless you try. A social trading network like eToro gives you the perfect opportunity to try out various investment strategies simply by copying the traders employing them. It’s as simple as finding a trader you like (based on their public portfolio and performance statistics) and allocating a portion of your funds to copying them. Even better, you can test out their strategy first by copying them with virtual money using your demo account.
Benefits both leaders and followers
In any social group, there are leaders and there are followers. In most situation, one of these two finds themselves at a disadvantage: followers who have to pay the leaders (e.g. hedge funds) or leaders who get no recompense for working harder (e.g. institutional trading floors). Social trading is one of the only environments that reward both. As a copier you get the benefit of others’ tested trading strategies, knowing that whoever you’re copying has their own money on the line. As a trader being copied, you get to earn rewards based on the number of copiers you can sustain, as part of our Popular Investor program.