Social trading: what is it and how does it work?

Social trading models have become a popular way for beginners to get their foot in the door of the trading world. Find out how social trading works and the different ways you could start trading.

What is social trading?

Social trading is the method of buying and selling assets based on the strategies of other – often more experienced – traders. It’s a technique commonly used by beginner traders, or those with little time to do their own analysis of markets.

Its supporters argue that social trading is ‘democratising’ financial knowledge – as it provides less-experienced traders with the opportunity to enter markets with the help of professionals.

You can think of social trading as a peer-to-peer social network of traders, where they exchange ideas, interact with others and educate themselves on financial markets.

Is social trading copy trading?

Yes, social trading and copy trading are based on the same concept. They’re both a form of automated or algorithmic trading, in which the positions of one trader are automatically copied from one account to another.

How social trading works

Social trading often works by making investment decisions and trade performance transparent so that everyone from the man on the street to the professional investor can replicate other users’ portfolios and trading activity automatically.

There are varying degrees of social trading. You could completely take on another person’s strategies and trading plan, or you could just copy certain aspects of it.  For example, if your chosen profile were to open a position on GBP/USD worth $100,000, you could do the same – or you might choose a different position size, say $10,000, depending on your risk appetite.

While social trading is becoming more accessible, it’s not to say it works for everyone. It does remove a lot of the mystery around financial markets, opening the door for more retail traders. But a lot of critics argue that’s not necessarily a good thing.

While social trading enables you to replicate the success of top traders and investors, you’ll also replicate their losses. Trading is a risky business and so without the proper knowledge and experience to identify good opportunities, you could end up following another trader down a dangerous path.

Your financial situation could also be vastly different to that of a professional investor, so it’s important to set your own trading plan that outlines how much capital you’re prepared to risk.

How to start social trading

Social traders don’t necessarily need to only copy one other investor, there are several different ways to get inspiration for trades. Such as:

• Social trading platforms
• Social networks
• Social trading tools

Social trading platforms

Some companies are making social trading a key part of their offering, creating community forums that are integrated into their platforms. Investors can just select the traders that they want to copy and automatically replicate the exact positions in their portfolio.

Social networks

Trading using social networks has become increasingly popular, especially among younger traders and investors.

A study found that social media is now the primary source of information for millennial and Gen Z traders, with over half of millennials and three-quarters of Gen Z investors regularly using sites such as Facebook, Twitter and Reddit to make decisions.

Social media was at the core of the meme stock movement in early 2021, when investors grouped together on the Reddit forum ‘r/WallStreetBets’ to take on hedge funds over GameStop. The social traders pushed the price of GME up over 10,000% within nine months, which saw institutional short sellers lose millions.

See the stocks trending on Reddit today

Social trading tools

Social trading tools can range from news feeds that follow a single trader to feeds that pull data from thousands of different traders’ positions.

A popular alternative would be trading signals, which provide buy and sell suggestions based on historical data and the previous success rates of others that have used them.

Our SMART Signals are based on an automated algorithm that monitors 23 global FX pairs – as well as 10 major stock indices and gold. They use thousands of data points spanning years of price movements to identify reoccurring patterns that can be used to make decisions.

Our SMART Signals dashboard will auto-populate your trade ticket, including take-profit and stop-loss orders to manage your risk. It is possible to amend these levels to better suit your plan and appetite.

When trading using signals, it’s important to note that past performance is no guarantee that the market will repeat itself.

Learn more about our forex signals