eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.

Social trading platforms allow traders to connect with each other and copy their trades. This can be a good way for beginner traders to start trading without having a lot of experience.

On these platforms, traders can view the trading history of other traders, as well as their strategies and performance metrics. They can choose traders whose strategies they like and start copying their trades.

👍 Social trading platforms offer a number of advantages, including:

• Access to the experience and knowledge of other traders: Traders can learn from the experience of other traders and gain access to their knowledge

• Risk reduction: Copying the trades of experienced traders can help reduce risks for beginner traders

• Cost reduction: Traders can save on the costs of brokerage services, analysis, and other expenses by sharing them with other traders

👎 However, social trading platforms also have a number of disadvantages, including:

• Risk of losing money: Traders who copy the trades of other traders risk losing money if those traders lose money

• Risk of fraud: There is a risk of fraud on the part of the management companies of social trading platforms

Here are some examples of collective trading platforms:

eToro
ZuluTrade
IG

These platforms allow traders to connect to other traders and copy their trades. This can be a good way for beginner traders to start trading without having a lot of experience.

Prop firms

Prop firms are companies that provide traders with funding and trading conditions to trade on financial markets. Prop firms typically require traders to pass tests and demonstrate their trading skills before they can start trading with their capital.

👍 Prop firms offer a number of advantages, including:

• Access to capital: Prop firms provide traders with access to capital that they can use to trade

• Opportunity to earn more money: Prop firms typically pay traders a percentage of their profits

• Opportunity to learn from experienced traders: Prop firms often have experienced traders on staff who can train and assist beginner traders

👎 However, prop firms also have a number of disadvantages, including:

• High risks: Trading with the capital of a prop firm is associated with high risks. Traders can lose all of their money if they suffer losses

• Complex rules: Prop firms typically have complex rules that traders must follow

• Competition: Prop firms typically have a very competitive environment. Traders need to be very good to succeed

Trading in a group managed by an investment management company

Investment management companies that manage collective funds typically consist of a team of traders who work together to make trading decisions. These traders can use a variety of strategies, such as collaborative analysis, arbitrage, or hedging.

👍 Trading in a group managed by an investment management company offers a number of advantages, including:

• Access to the experience and knowledge of other traders: Traders can learn from the experience of other traders and gain access to their knowledge

• Risk reduction: Using a variety of strategies can help reduce risks for investors

• Ability to diversify a portfolio: Investors can diversify their portfolio by investing in a collective fund that invests in a variety of assets

👎 However, trading in a group managed by an investment management company also has a number of disadvantages, including:

• High costs: Managing a collective fund can be expensive. Investors must pay investment management companies for managing their funds

• Risk of losses: Investors can lose money if the investment management companies suffer losses

Which option to choose

The choice of collective trading option depends on the individual goals and needs of the trader or investor.

Social trading platforms can be a good option for beginner traders who want to learn from the experience of other traders and gain access to their knowledge.

Prop firms can be a good option for experienced traders who want to earn more money and learn from experienced traders.

Trading in a group managed by an investment management company can be a good option for investors who want to diversify their portfolio and reduce risks.

Benefits and downsides of collective trading

👍 Pros of Collective Trading

• Risk diversification: Collective trading can help to reduce the risks associated with trading. When traders pool their resources, they can diversify their portfolios and reduce the likelihood of large losses

• Access to experience and knowledge: Collective traders can access the experience and knowledge of other traders. This can be especially helpful for beginner traders who do not yet have enough experience to trade successfully on their own

• Cost reduction: Collective trading can help to reduce trading costs. When traders pool their resources, they can share the costs of brokerage services, analysis, and other expenses

👎 Cons of Collective Trading:

• Management restrictions: In collective trading, traders must adhere to the rules set by the management company. This can restrict their freedom of action and reduce their profitability

• Management complexity: Managing a collective fund can be complex and time-consuming. The management company must have the experience and knowledge to manage investors' funds effectively

• Fraud risk: There is a risk of fraud on the part of collective fund management companies. Investors should carefully research management companies before investing in their funds

Comparative table of individual and collective trading

Characteristic	Individual trading	Collective trading
Responsibility	Trader is fully responsible for their actions	Trader is responsible for their actions within the rules of the collective fund
Freedom of action	Trader has full freedom of action	Trader is limited by the rules of the collective fund
Access to resources	Trader has access only to their own resources	Trader has access to the resources of other participants in the collective fund
Experience and knowledge	Trader must have their own experience and knowledge	Trader can learn from other participants in the collective fund
Risks	Trader bears all risks on their own	Risks are shared among participants in the collective fund
Opportunities	Trader can independently make decisions and receive full profits	Trader can access the resources of other participants and diversify their portfolio

Specific strategies for group trading

Here are some of the specific strategies that collective traders can use:

Collaborative analysis: Collective traders can pool their resources to analyze the market. This can help them to identify trends and opportunities that they would not be able to see on their own
Arbitrage: Collective traders can use arbitrage to take advantage of price discrepancies between different markets. This can be a profitable strategy, but it can also be risky if the prices do not converge as expected
Hedging: Collective traders can use hedging to reduce their risk. This involves taking offsetting positions in different markets or assets

Conclusion

Collective trading can be both a positive and negative experience. Investors should carefully weigh the pros and cons before making a decision to invest in a collective fund.

FAQs

What is the difference between individual and group trading?

Individual trading: The trader makes all decisions and bears full responsibility for their actions. They have full control over their trading strategy and profits. However, they also have to bear all the risks associated with trading
Group trading: A group of traders pool their resources together and make decisions as a team. This can help to reduce risk by diversifying the portfolio and sharing the workload. However, it can also be more difficult to make decisions and manage the group effectively

What are the advantages of collective trading?

Reduced risk: By pooling their resources together, collective traders can diversify their portfolios and reduce their overall risk
Shared knowledge: Collective traders can learn from each other's experience and knowledge, which can help them to make better trading decisions
Access to expertise: Collective traders may have access to expertise that they would not have on their own, such as professional analysts or traders
Reduced costs: Collective traders can save money on brokerage fees and other trading costs by sharing them with other members of the group

What are the types of collective trading?

Social trading platforms: These platforms allow traders to connect with each other and copy the trades of other traders
Prop firms: These firms provide traders with funding and trading conditions in exchange for a share of their profits
Managed funds: These funds are managed by professional traders who make all of the trading decisions

How to join collective trading?

There are a few different ways to join a collective trading group:

Search online: There are many websites that list collective trading groups
Ask your broker: Your broker may be able to connect you with a collective trading group
Network with other traders: Attending trading conferences or events can be a great way to meet other traders and learn about collective trading groups

Team that worked on the article

Alex Smith

Cryptocurrency and stock expert

Alex Smith is a professional day trader for a proprietary trading firm within the foreign exchange (forex) and crypto markets. His area of expertise is day trading and swing trading within the 15min-4hr time frames for both the London and NY open.

Dr. BJ Johnson

Developmental English Editor

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

Mirjan Hipolito