Social trading: pros and cons

Man survived dozens, if not hundreds or thousands of revolutions. The most important for our story, however, is three pieces with its breakthrough deserve such a name. It is mainly about the invention of the steam engine, electricity and the computer. The latter invention has to a large extent, perceived by many contributed to the most immediate and most important scientific and technological revolutions. Often, we talk about another revolution – this time in the world of finance. Deserves social trading such a title? In order to answer this question, you need first of all to understand the idea of social trading, its advantages and disadvantages.

More and more people are interested in trading. The higher the number of active traders the larger the share of those who remain in the vinstzonen, despite the fact that this is still low. The average profitability of customers in the Swedish brokerage firms that offer trading with CFD instruments will uctuate around 45% if the indicator accepts CFD for currency. Why is it so important?

Because of the hard statistics, you can draw a simple conclusion – most of the investors lose. This is not an emergency because the losses is an indispensable part of the trade. You can even dared to say that all those who actively invest, at a certain stage on its way, loses money. Some lose a part or the whole deposit, sometimes a valuable lesson, while for others a traumatic event.

Losses can mobilize for further learning, which leads to a better understanding of the mechanisms of the market, its own psyche, or the development of a better investment strategy. But they may be a different brick to the förskjutningsväggen where there is a powerful inscription: the market will not make money! And in this case minimize the chances of losses?

The question in the title is really controversial. But most of us are probably accustomed to getting a new Holy Grail in the forex market. This name is used by all drömsäljare, which thus advertises the selling system or the transaktionsmaskin sold by the system. But when we lean closer to the phenomenon of social commerce, we have the potential that this investeringsstil hides.

What is social trading?

It is based on a schedule, similar to that used by the users of Uber, Airbnb or BlaBlaCar. Behind social trading is a social platform that enables trading in a group. Social commerce (or copying) is the combination of the best of Facebook with the ability to trade financial instruments. Beginners in commerce can see a more experienced investors, and draw conclusions from them in the future, which in such a way could lead to more successful transactions. But that’s not all – social trading also shows what professional investment funds offers. With the difference that the fees for social commerce is incomparably less than the we have to deal with by acquiring shares in the fund. An experienced investor who regularly registers the trade profits can, thanks to social trading also take advantage of the market knowledge by providing signals to all who choose to follow. The first day on the market can in turn add regular profits – so long as they have made the right choice in the search for a provider. Win-win situation?


Admittedly, this is one of the main advantages of the mentioned profits from day one. And while it is possible for a wholesaler to achieve amazing results (so-called beginners ‘ course), however, it is rare that this situation continues in the long term.

Social trading allows actually more or less spectacular income for people who simply lack the economy. All you need to do is to pay the right amount for yourself (remember to invest only the money you afford to lose) and start to copy the signals from a more experienced person. The only question that remains: can a person without financial knowledge to choose the right supplier of only the signals?

However, if we are at a stage where we can already differentiate between long and short positions and we want to not spend time on trading, then, can social commerce be the perfect solution to achieve additional income. By choosing the right suppliers of signals we will be able to create an investment portfolio that earns almost under all sorts of conditions. A simple solution is to look for experts in a particular field, find a trader who professionally deal in gold, raw materials, and a kryptovalutor specialist and an experienced aktiemarknadsinvesterare that will maximize potential winnings and minimize potential losses. It is much more likely that one of our providers will make profit that will cover any losses arising from the other two activities than to all three go bankrupt.

An important element of social commerce is the fact that the entire investment process takes place practically without our intervention. All of the articles that are opened by our supplier (or suppliers) will open (after you have withdrawn it to our account size) also of the us. At the time of any profits, we could instead play with the dog in the garden, or perform thousands of other activities. The option to set a stop-over level, in addition to which our account ends copy leverantörssignaler and all objects are closed automatically, which makes the whole process very safe for our portfolio.

In addition to the passive income from that copy other signals improves the social trade our own commercial skills. To track with more experienced traders is one of the best methods to learn. The social side of social trading platforms make it easy for us to talk with our supplier about the strategies the others use.

Finally, we can be experts at foreign exchange trading, but the commodity market becomes incomprehensible to us. Even with our proven strategy, we can trade with the knowledge and experience of those who deal in exotic markets for us. In addition, we can find a person who will improve the efficiency of our investment strategy by opening positions where we do not see the signal.

Social trading costs

Would a trader with a good system and a regular dividend be interested in sharing their knowledge and experience for free? It depends on the individual’s personal belief but most have the choice to give something for free.

Among the social trading platforms, there are those who charge in advance for the use of the trading signals from other traders. This is based on the MQL5 Community, which allows you to copy signals directly to our MetaTrader platform. The solution is very convenient, but not necessarily the best. MQL5 platforms can of course not be compared with buying a cat in a bag because the user has received a lot of statistical data from signal providers. Still, the initial investment (costs for the delivery of the signals) to be discouraged. Of course, there are free users who share their experience. Often it turns out, however, that the transaktionssignaler generated by them are of poor quality or that the user simply collects efterföljarnas group to come into the signalavgifterna after exceeding a certain threshold.

Definitely is a better solution platforms for the tracking of other traders not charge any fees. Among such devices, can the leader of the social commerce industry eToro to be mentioned. No fee does not mean however that they do not exist at all. They are hidden in a slightly wider spread than usual. For this reason, eToro users tend to trade with higher intervals, which in my opinion definitely improves their profitability.

Another form of social trading costs is the distribution of the profit. It is used on the very popular PAMM accounts (percentage förvaltningsmodul). PAMM-accounts makes it possible for experienced pengarchefer to gather a group of people who want to use their knowledge and experience and create a pool of money. The proportion of individual members in the entire account is eligible for a corresponding percentage of the profit from the total capital.

For example, the investors X, Y and Z to the merchant A to manage his PAMM-account. X and Y pay for this a thousand crowns while Z pays up to 3 000 sek. Trader A owns 5 thousand in equity so that the total value of the PAMM-account will be as much as 10,000 in gold. Gentlemen agreed to trader A in exchange for management of their money will get 10% commission. After a month reached the the merchant A a return of 20%, that is to say that he was clean of 2000 sek. After provisionavdrag was the division 1800 sek. Trader A takes up to 50% of this amount (on the basis of its share of the initial capital), investor Z pays 30% of 1800, or 540 b.c. Investors X and Y will then be satisfied with the amount of 180 sek.

The above model is one of many used on PAMM-accounts. These had their episodes, both in the world and in Sweden when it was a very popular alternative techniques. Unfortunately was not supported the idea of PAMM-accounts by the representatives of regulatory authorities on capital markets of individual countries. The biggest criticism against this techniques was the lack of licensing of managers for such accounts. According to regulators, this meant a great risk of fraud, which led to a reduction of the attractiveness of such a form of investment. You need to remember, however, that a prestigious license at home or abroad does not guarantee a satisfactory return on the market.

Is social trading a scam?

In the text was deliberately left out the issue of social handelsbrister. The most serious objection to this method of trading have already been addressed in the section on social trading costs. Actually is the biggest drawback of this solution is higher cost than the normal transaction costs. Of the simple logical consequence – a provider.

The higher the costs are, however, also a matter of debate, since their share of the sum is crucial. With a multiräkning seem to need to pay $ 20 for transaktionssignaler be negligible. Especially at a time when the potential profits many times exceed $ 20. In addition is the payment of a wider spread and the loss of one or two pips on a transaction acceptable when trading with the higher intervals, while the profits and SL levels is only a few tens or even hundreds of pips.

It should be noted that social trading is not a useless scam. The largest social trading platforms (here referred to as the eToro or MQL5 Community) use solutions that are approved by leading regulatory authorities. On the other hand, it is controversial the fact an opportunity to earn money on others ‘ knowledge and experiences. Are all the traders?

This question, even if it can seem absurd, is often discussed on forums and newsgroups. Finansmarknadsälskare believe that a genuine traders to earn in the market instead of copying signals. A discussion on this topic can be drawn through the nearest points but it is worth it to find the answer to the question if I want to be a professional trader, or I just want to make money in the market? To act on its own may actually bring us to the point where your revenue will be booked many times over the average monthly salary. The road to this stage, however, is long and bumpy. Will certainly the wish to reach there, to undergo much effort and defeat. On the other hand, it is possible to assign some of their resources to those who have already passed the road earlier.

There are not any obstacles to combining the two practices – individuality and community in an investment strategy. Some of the funds arising from the social commerce can be spent on learning and the careful selection of signal providers to build their deposits. Social commerce may not be the Holy Grail but it certainly is a strong trend in the investeringsbranschen and we will hear more about it later.

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