Social Trading - Fad or Phenomenon?
Social Trading has been around for several years now, with well-known platform ZuluTrade being build back in 2006. But it's only more recently that is has begun to take off hugely. For example ZuluTrade now supports as many as 65 different brokerages and has grown into a huge company.
Social trading allows traders to see what positions other traders are opening live and either manually follow these positions or follow all of the trades of this particular trader. The key idea behind social trading is simple, it allows individuals to piggyback for the results of successful traders letting them make considerable amounts of profit. Therefore the followed traders themselves make significant commissions for everybody who decides to adhere to their trades. Giving successful traders a reason to share their successful techniques and strategies with the wider Forex community.
This type of trading takes a great deal of the difficult decisions out from the trading process which is partly why it is often pushed so heavily by brokerages. Since it attracts a whole new type of traders who don't have an in-depth idea of the financial markets but are evident that there is much money to be made from day trading etc. But social trading isn't without its very own risks. A number of traders take part in high risk trading strategies in the hopes of making significant commissions from followers, often these systems blow up leaving a great deal of their followers with huge losses. These trading sites have countered this issue with a number of different methods, eToro as an example allows some to assign at most 20% of their total capital to following one person trader. Even these kind of measures still leave traders facing significant risks.
This specific industry has flourished and definately will continue to flourish due to the fact many people will be fascinated by the possibility of making significant returns on their capital from simply following a trading actions of others. Even so the significant risks included in such trading in many cases are vastly understated. Engaging in social trading can be achieved for very little with some social trading brokerages requiring deposits of no more than $50. While I'm sure there are a number of major successes when it comes to social trading, I will be willing to be there are already a similar number of substantial losses. Prior to getting involved individuals must take a long hard consider whether this activity works for them.