Bitcoin and other cryptocurrencies have established themselves as an alternative or independent asset class – depending on who is asked. The volatile nature of these virtual currencies provides the allure of massive trading profits, as well as the potential for devastating losses.
Without any experience in the financial markets, however, newbie cryptocurrency traders are often taken in by unsupportable promises of high returns. Not everyone is well-versed in technical analysis and so, social cryptocurrency trading is becoming a growing trend.
What is Social Trading?
Social trading also known as “copy trading” or “mirror trading” is the practice of replicating the trading positions entered into by another trader. Think social media, but this time, for asset trading.
As a trading strategy, it affords the user the ability to make trades without requiring in-depth knowledge of technical indicators, market trends and conditions to name a few. By simply replicating the trades of other users, more people are able to participate in the financial market.
Social trading in many ways exists due to the emergence of social engineering via protocols introduced by Web 2.0 which has led to the establishment of social platforms. These platforms enable users to interact with one another exchanging ideas.
In social trading, the investment strategy is to pay more attention to the traders in the market than to the market itself. Thus, newbie traders need to understand their risk appetite and see which traders’ methods are in line with their expectations.
Forms of Social Trading
At this point, it is important to explain the subtle difference between copy trading and mirror trading. Despite sometimes being used interchangeably, both terms have different meanings.
In copy trading, the copier sets up a trading account that is linked to the personal account of an expert trader or signal provider. When the signal provider shares the signals, they are sent to the copy trader’s account for evaluation.
The copy trader can decide to use the signals as is or make some adjustments depending on the trader’s confidence and expertise level. Once complete the copy trader’s position will automatically resemble that of the signal provider.
Mirror trading is almost similar but with one major difference. Instead of the communication being between the account of the signal provider and the copy trader, the trading platform itself will mirror the strategies employed by the signal provider unto the account of the copy trader.
As in the previous case, the copy trader has the option to tweak the strategies depending on their preferences. Apart from copying and mirroring trades, social trading also encompasses the exchange of ideas, strategies and opinions about the particular market.
Why Newbie Traders Should Consider Copy Trading
People new to trading can quickly come to terms with the fundamentals of the trading market via social trading platforms. By interacting and observing experienced traders, they can significantly reduce the steepness of the learning curve required to master the asset trading scene.
Becoming well-versed in the intricacies involved in trading cryptocurrency and foreign exchange can be a daunting endeavor. Fear of beginner’s failure could become a significant deterrent preventing people with an interest in the asset market from pursuing trading. By being part of a social trading platform, however, newbies can begin to earn money while still learning the ropes.
The social engineering aspect of social trading creates a community of traders – experienced and newbies alike – constantly exchanging ideas and interacting with one another. Such interactions have the potential to dovetail into numerous beneficial avenues for all participants involved.
Social trading is an easy way for a newbie investor to create a diversified asset portfolio. Copy and mirror trading can be applied to several asset markets including forex, stocks, bitcoin and altcoins to name a few. For cryptocurrency enthusiasts, there are numerous social trading platforms that support crypto trading.
Being part of a social trading platform also drastically reduces the cost burden of participating in the asset market. Rather than employ an investment banker or sign-up under a broker, social trading allows newbie traders to open much cheaper trading accounts on broadly accessible platforms.