The Pros and Cons of Social Trading

Thanks to the rise of online brokers, it’s never been so easy to open a trading account. Anyone can trade in foreign currency these days, and you don’t need any special skills to make money from your trading activities.

Trillions of dollars are traded on the forex markets each day, which makes it an attractive investment opportunity for would-be traders. But forex trading isn’t as easy as it looks.
Social trading, also known as ‘copy trading’, is a way for inexperienced forex traders to dip a toe in the water. Instead of devising your own trading strategy, you simply copy someone else’s trades. Platforms like eToro and ZuluTrade are hugely successful – you can learn more about ZuluTrade by heading over to who have written a step-by-step guide for those who’d like to leverage it.

If social trading appeals to you, read the following pros and cons before you make a final decision.

Follow the Experts

The biggest advantage of social trading is that you can follow someone else’s lead. Rather than spend months learning the ins and outs of forex trading, just copy a more experienced trader’s trades and reap the same rewards. Automated software makes this incredibly easy.

Build Your Confidence

Social trading is a good way to build your confidence before you strike out on your own. Demo accounts are great but playing with fake money is not the same as trading with your actual capital. A social trading account is a useful middle ground. You are trading with real money, but the risk is lower and you are more likely to make successful trades on a social trading platform.

Find a Mentor

Having a mentor helps you to grow as a trader. On social trading platforms, you can take your pick. Spend time watching how other successful traders work and follow a few. You can learn from their trading strategies, which helps you to formulate your own.
There are also some disadvantages of social trading, which should not be underestimated.

No Guarantees

Forex trading is a risky business. Even successful traders have bad days where they lose money. Don’t assume that every copy trade you make will be a winner – it won’t. Be prepared to lose money and have the funds to cover your losses.

Don’t Get Too Cocky

Just because your social trading mentors are making the right decisions and you are profiting as a result, don’t assume that the good times will continue indefinitely. It is easy to think you are better than you really are when copy trading. Social traders sometimes forget that they don’t know as much as they think they do. Copying trades may lead to a false sense of security. Don’t let this happen to you. Spend time learning the technical aspects of forex trading, so you can spot a bad trade before you lose money. Experienced forex traders make mistakes too, but if you blindly follow them, you’re the foolish one.
Use social trading as a stepping stone on your forex trading journey. It’s a useful starting point, but make sure you spend time learning the ropes and developing your own trading strategy.

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