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Note From Kalen: I always want to show you guys every possible aspect of investing, but as with any investing, do your own research, don’t make any quick decisions, blah blah blah… I think you’re smart enough to figure that out. 🙂 This is purely for informational purposes.
The financial markets are buzzing with trading activity, 24/7.
If you have an interest in the financial markets, you will find it useful to contemplate as many different options as possible before you settle with any old broker. For starters, there are a lot of things to consider.
- What are your investment objectives?
- Are you interested in compiling a retirement portfolio, or simply trading for quick profits?
- Are you risk-averse or risk seeking? What types of assets do you enjoy trading?
As you can imagine, the list of questions is endless. Traditional trading activities may not be suited to your personal style, or needs.
Maybe it’s time to consider social trading as a viable alternative.
I am the type of trader who is eager to jump into the financial markets once I understand what I’m doing.
Unfortunately, the convoluted investment sector is not very accommodating to neophyte investors. Sure, most brokerages offer trading tutorials, guides, and customer support to assuage your concerns, but they simply don’t make it easy for you to understand what to do with your brokerage account.
That’s where the power of social trading makes the world of difference. Perhaps I should elaborate a little on what social trading is so that you can better appreciate why I have found it to be so valuable in my experience.
What is Social Trading?
Have you heard of crowdfunding platforms? If you have, then you have a pretty good understanding of what social trading is about.
Social trading utilizes the wisdom of the crowd to make trading decisions.
When you dabble in social trading activity, you’re working with user generated content to make your trading decisions.
All the info that is available to you is provided by market participants. As a social trader, you can leverage the power of the social trading network or platform to gain instant access to other users’ portfolios, and piggyback off their performance. There are many features available at the leading social trading platforms that make it easy for you to copy other traders, and profit off their success.
Imagine being able to duplicate all the successful trading decisions of other traders and reap the rewards.
That in essence is one of the biggest benefits of social trading. You can enhance your trading experience by using the wisdom of the crowd to your advantage.
Nobody knows everything about the financial markets; that’s why it is so advantageous to pick out a handful of traders who are successful, follow them, copy their trades, and enjoy the benefits.
Just in case you’re wondering why social trading is so popular, consider this: social trading is intuitive, highly lucrative, and transparent.
When you can see exactly what other traders are doing at any given time, you’re not operating behind a veil.
How to Become an Effective Social Trader
Firstly, you need to pick the right social trading platform to partner with.
Many brokers claim to be frontrunners in this regard, but only a handful pass the litmus test. I’ve been heartened by my experience with one broker in particular, and I encourage other traders like me to read up on eToro opinions from objective sources.
If you’re looking to fine-tune your social trading skills, it’s important to have an understanding of the financial markets.
What types of financial assets are you looking to trade? There are 4 broad categories including stocks, commodities, indices and currencies. If you’re based in the US, you may prefer to trade the USD, the Dow Jones, the NASDAQ with the S&P 500 index. If you’re based in the UK, the GBP, FTSE 100 index and FTSE 250 index may be your financial instruments of choice.
Related: What is an Index Fund?
Once you have decided upon your assets/markets, adopt a strategy that suits your trading style.
With social trading, you can follow and mimic the actions of as many traders as you want. You will however need to diversify your portfolio to make accommodation for your trading style.
Next up, decide whether you are the type of trader who enjoys opening/closing multiple positions during the day, or if you prefer a strategic approach to your trading activity, lasting weeks or months. Regardless, there are always options available to you in this regard.
I cannot stress enough the importance of practicing before you deposit and trade for real.
Whether you are a social trader or a go it alone trader, you will always want to understand how the platform works before you wager real money.
Remember, all investments carry a degree of risk. You can mitigate this by using the wisdom of the crowd to your advantage.