Social Trading - Fad or Phenomenon?
Social Trading 's been around for several years now, with recognized platform ZuluTrade being build back in 2006. But it is only more recently that is certainly has begun to take off big. For example ZuluTrade now supports a total of 65 different brokerages and contains grown into a huge company.
Social trading allows traders to find out 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 very easy, it allows individuals to piggyback about the results of successful traders allowing them to make considerable amounts of profit. Therefore the followed traders themselves make significant commissions for everybody who decides to follow their trades. Giving successful traders grounds to share their successful techniques and methods with the wider Forex community.
This sort of trading takes a lot of the difficult decisions out from the trading process and this is partly why it's been pushed so heavily by brokerages. As it attracts a whole new type of traders who don't have an in-depth understanding of the financial markets but are evident that there is much money to make from day trading etc. But social trading isn't without its very own risks. A number of traders engage in high risk trading strategies hoping of making significant commissions from followers, often scalping strategies blow up leaving a great deal of their followers with huge losses. These trading sites have countered this problem with a number of different methods, eToro for instance allows some to assign a maximum of 20% of their total capital to following a single person trader. Even such measures still leave traders facing significant risks.
This particular industry has flourished and definately will continue to flourish simply because many people will be fascinated by the possibility of making significant returns on his or her capital from simply pursuing the trading actions of others. Though the significant risks associated with such trading are often vastly understated. Getting yourself into 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 were a number of major testimonials when it comes to social trading, We are willing to be there have been a similar number of substantial losses. Prior to involved individuals must take a long hard think of whether this activity is suitable for them.