Learn what social trading is and how it works from examples. Find out a definition of copy trading that can help you earn money on Forex and other financial markets.
Social trading is a form of investment that first started to gain popularity in 2010 with the launch of eToro’s platform. The social trading platforms follow the principles of social media: communication, exchange of knowledge, mutual help, and partnership.
Copy trading systems are used as an add-in to the social trading platforms on Forex. They enable the members of the community to earn money jointly.
Novice traders without knowledge and experience have an opportunity to subscribe to the signals of professional traders and copy their trades either manually or automatically.
In exchange, expert traders gain a high social status in the community, and as a rule some commission from the return.
The value of social trading platforms on Forex is extremely high for the beginners. They have an opportunity to:
Earn money while making the first steps in the market
Study the strategies of the top professionals
Communicate and exchange experience, all in one place
A large part of the community members use the platform purely as a source of additional passive income.
Noteworthy, it doesn’t require a big capital to start working in the majority of Forex social trading platforms. As a rule, you can start from $100 - $1,000.
The biggest drawback of Forex social trading is that the novice traders are drawn by the high profits, while the results of the managers in the past do not guarantee the same outcomes in the future. Losses also happen.
Social trading works like a well-oiled machine, in which the brokers, platforms, novice traders and professionals are the key players.
Let’s take a look at how the cooperation works:
Is a professional network that serves as a link between the beginners and expert traders in trading, a place for communication and information exchange. Often, it strongly resembles a traditional social network on the outside with features like posting information, commenting, liking posts, exchanging messages.
Act as signal suppliers. They trade on their account, allowing the novice traders to copy their trades. On some platforms, they can also have their own professional blog.
Are the main users of the platforms. They have an opportunity to copy the trades of professionals, communicate and copy signals of expert traders at the established ratio on their own account.
Ensures order execution, access to instruments for copying. The benefit for the broker is the increase of trading activity and attraction of new customers. Some brokers, like eToro, FXTM, RoboForex, have proprietary social trading platforms, although the majority offer their customers the services of third-party providers.
is a supplier of social trading software, a platform that allows to unite customers of different brokers in one place. The most popular providers are MQL5, ZuluTrade, DupliTrade.
There are several ways to earn money on social and copy trading platforms.
Can earn by copying the trades of professionals. As a rule, they can choose several managers at once, thus diversifying their portfolio.
Can earn from copying commissions. As a ruled, it’s a specified percentage of profit, which could range from 2-5% to 50%. eToro platform does not have a copying commission for investors, while the most successful managers receive a reward under the broker’s program.
A lot depends on the broker and the platform that you’ve chosen. You should consider the platforms with regulation in one of the countries with a developed legal system (for example the UK, Cyprus, Australia, USA) and statistics that are transparent for analysis.
Social trading on Forex from the world’s top brokers is safe and the key risks are, as a rule, lie in the trading itself. However, also scam brokers may offer copy trading, seeing as the popularity of the service is growing. Scam brokers are, as a rule, not regulated, do not specify the risks and overstate the potential of the profit.
Social trading platforms on Forex have opened entirely new possibilities for the millions of participants. Previously, only experienced professionals, who dedicated years to studying and gaining experience, could earn a profit on the Forex market, while now also novice traders can earn just as much.
In the wider meaning, the networks helped consolidate a previously fragmented trader community, ensure quicker exchange of information and latest knowledge. After all, the beginners are not the only ones interested in learning how the professionals trade; many expert traders wouldn’t mind peeking at the work of their colleagues in search of ideas.
David Palmer, 45, Austin, Trader
As a trader, I grew on the eToro platform. First, I simply copied the trades of experienced colleagues, and learned, and then I started to trade on my own, earning a steady profit. I think it’s time for me to open my profile to subscribers.
Naomi Fletcher, 35, Manchester, Investor
The idea is great, although not all platforms do it smoothly in reality. It is true, you don’t have to pay the managers on eToro, but on the majority of other networks, they squeeze you dry – the broker has an increased spread and the managers take up to half of your profit! As a result, you won’t even break even with these kinds of demands.
Mehmet Marangoz, 42, İstanbul, İnterpreter
For me, social trading is a possibility to earn passive income without spending days at the screen. They’ve come up with a very convenient format. The return rate is naturally lower than the brokers promise in their ads, but it is totally real to earn 15-30% annual profit.
You can register and start communicating for free. In order to start copying traders, different platforms have different minimum amounts. On average, it’s from $100 to $5,000.
We recommend that you consider eToro, AvaTrade, RoboForex, and FXTM.
The main risks arise when you start copying other traders. The thing is that great results of a trader in the past do not guarantee the same outcomes in the future. Also, you should stay away from little-known suppliers of services that do not hold the license of a top regulator.
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Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.
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