Best Social Trading Platforms

At the moment the single most popular social trading platform out there is eToro. Other emerging social platforms that you can try are tradeo and zulutrade.

How Social investment Networks work

What is Social Trading?

With Social Trading you can make experienced traders work for you and teach you. And this knowledge is for free as it is a win-win model both for the copiers and the guru traders / signal providers. This is very useful for beginners and people who don’t want to spend all day in front of complex charts and financial news reports. Social investment networks join thousands and millions of traders in a friendly environment where anyone can tap into the wisdom of crowd. Best strategies are no longer kept secret but shared as the guru traders/signal providers earn commissions by the amount of followers and copiers they have or by the amount of copied deals. Followers can see detailed performance statistics of the seasoned traders, ask them questions, read their discussions and posts. With a click of a button one can copy individual or all trades of a preferred trader. The positions are opened proportionally, meaning that if the guru trader opens a position of 1000 $ which constitutes 5% of their account, the copier will also enter with 5% of his smaller account thus greatly minimizing exposure to risk.

The main idea of Social trading networks.

The target of a social trading network’s user is to create a portfolio of successful traders who then make money for the user and themselves. This portfolio has to be picked wisely and diversely so that there are traders with different risk appetites, strategies and favorite currency pairs.

Sounds too good! Where is the catch?

Just copy the best traders, sit back and watch how they make money for you – this really sounds too good to be true! So is there a catch? The answer is Yes and No. There is no catch in terms of the idea and the system, social trading is built to make all the users happy and also make some profit for the brokerage of course. The catch or the challenge lies in two aspects:

  1. The risky and unpredictable nature of the currency market in general
  2. Not all top ranked signal providers can be fully trusted

So first of all about the almost hidden nature of the forex market which most people are not fully aware of. The real interbank exchange market is quite a hostile and turbulent place – there are slippages and even the big traders can never be 100% sure that when they hit “buy” it will be executed at the price quoted in the screen as the market can move several pips while the button is pushed and signal goes through. The big ECN brokerages also do not guarantee precise stop loss execution for the same reason, especially in volatile market conditions. And the list of risks goes on, but they are a part of the game to which the pro traders are used to. Social investment networks and retail brokers build their systems so that they are friendlier to the beginner traders and they try to minimize these risks as much as it is possible, but the trick is that they can’t be avoided completely. But people’s perception and expectations are spoiled by marketing promises so they blame the brokers for every slip and unfulfilled order. The situation is made worse by the fact that there are also fraudulent brokers out there who manipulate with their clients trades. But the good part is that there are good brokers and that the social trading platforms are the best place to start learning the art of trading as they are also the least risky ones compared to the whole industry.

Secondly and most importantly one must bear in mind that not all the top traders from the charts are completely honest. Where there is money there will always be people who try to manipulate and cheat. There can be traders with seemingly great results who manage to lose all their money the next day, causing losses also for their copiers. But the good news is that there are signs how to spot such manipulating individuals, read more about them here.

To better understand what is social trading and where it is heading it is useful to know a little history:

Short history of Trading social Networks

2000’s – First trade copying companies are born. This service is called Mirror Trading and it accumulates best trader deals and lets people create mirroring accounts. Not many options of adjustments are available and there are quite a lot of errors and slippages in the systems.

2006 – Zulu Trade is launched with a slightly improved system allowing users to manage some risk control parameters.

2008 – Economic crisis hits the whole world. Stock markets go in a recession and more and more people (both investors and ordinary humans) turn to forex as it is the only market that not only avoided crisis but allowed to make profit from it.

2009 – Seeing the great potential and interest for the exchange market from people with no experience in trading many forex brokers integrate social trading into their systems. The most popular social system developer is Tradency whose platform is built-in by many brokers in 2009, 2010 and next years. Unfortunately there still are a lot of problems in the systems as it is very challenging to synchronize many thousand trades in real-time.

2011 – Etoro introduces Copy Trader which sets a new benchmark for social trading. It clearly stands out from the crowd opening the doors of currency trading to large audiences allowing beginners to tap into the wisdom of crowds. The system is made radically more simple, intuitive and enjoyable than any forex platform out there. It is more like a Facebook for traders where people can follow the best investors, interact with them, see all their transactions live and copy their trades. But there are still occasional hiccups in the system at this early phase and some of the guru traders are cheating to get higher rankings.

2012, 2013 – Both Etoro and Zulu Trade keep investing large resources to improve their social platforms. Influenced by the success of Etoro, Zulu also redesigns the whole platform making it also more visually appealing. Zulu continues to expand and add new brokers to its system as it allows users to copy traders from different platforms, not only Zulu’s. Having signal providers from different platforms is Zulu’s strongest competitive advantage. Etoro keeps steady focus on delivering the best user experience, wins awards and seems to be working on preventing the rating manipulations of the guru traders.

The Verdict

The very idea of social trading is great! In the real life there are of course some bumps along the road and you must be careful, but these bumps are becoming less significant with each software upgrade and there are ways to solve these issues related with the human factor. Nowadays the best social platforms provide advanced and detailed tools for filtering traders. Users can filter traders and signal providers by multiple aspects of trading style, results and choose the safest ones. Still these filters can’t guarantee 100% security and you shouldn’t carelessly rely on them. After all every business and investment opportunity requires some effort, and social trading is no exception – money doesn’t grow on trees and you have to be cautious and analyze your investments carefully. That being said social trading is becoming the best way for beginner traders to get a feel of the foreign exchange market and learn from seasoned traders in a fun and interactive manner. There are a lot of good traders who have begun like this – first copying some traders, analyzing their trading tactics and after some time they gradually start trading on their own. You can’t compare learning from books to learning from real trades in real time. So good luck and remember to start with a demo account first!

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