Gone are the days when you had to check the newspapers for stock prices, attend monthly investing meetings to share trading ideas, and actually telephone your broker if you wanted to place a trade. Today’s trading landscape is fueled by constant improvements in technology that mean that information, ideas, and insights can be shared with anyone, anywhere, in a matter of seconds. While there is no denying that this empowers traders in a multitude of ways, there is also a darker side to these developments that places retail traders especially at considerable financial and personal risk. The good news, however, is that with a dedicated social trading network, traders can effectively mitigate these risks. Accurate information, comprehensive education, and peer support all serve as powerful antidotes to the smoke and mirrors that any trader – new or experienced – faces when trying to research trading decisions online.

What is social trading?

Social trading is an approach to trading financial and digital assets where traders seek to improve their own trading performance by observing, learning from, and discussing ideas with other traders.

Unlike trading courses, masterclasses, and personal mentoring, social trading has a very low barrier to entry in terms of cost and accessibility. Everyone from first time traders to highly experienced investors can sign up to a social trading network, usually for free, and start collaborating with others without needing any existing contacts in the industry.

Social trading works because traders are not competing against each other; they are competing against the market. This creates a sense of shared goals that drives positive interactions and collaboration. Researchers from MIT Media Lab have even concluded that “social trading provides much better opportunities for profiting compared with individual trading” (as long as traders can effectively choose who to follow on social trading networks).

What is a social trading network?

A social trading network (sometimes referred to as a social trading platform) is a social network (like Facebook, Twitter, or Instagram) that is focused exclusively on trading and investing.

One of the core benefits for users is that a social trading network not only gives traders and investors the opportunity to meet like-minded people, but it also gives them access to specialist content, current and historic market data, charting tools, trackers, and other advanced technologies – many of which now leverage artificial intelligence (AI) and machine learning (ML) – that enhance discussions around trading and investing topics.

By being able to access this crucial information in one place, a social trading network provides a platform through which traders can generate ideas for trades and then solicit feedback from others on the merits of their trade hypothesis and fundamental or technical analyses. This is a critically important function of social trading networks that cannot be achieved through more traditional media outlets like news websites and investment bulletins.

Why do traders need a social trading platform?

The core reasons why traders need a dedicated social trading platform center on the network’s ability to educate, which in turn empowers traders to access more reliable information, develop their knowledge and skills over the long-term, and ultimately make better trading decisions.

Let’s look at some of these benefits in more detail:

1. Social trading networks allow traders to leverage the power of the crowd

The top social trading networks have millions of users registered on their sites, and the majority manage to keep most of their users active every month.

These user bases in and of themselves are immensely valuable resources for traders, allowing them to effectively crowdsource ideas for new trades and get diverse feedback on any potential trades they upload to the platform. Having the ideas and trade history of millions of other traders at one’s fingertips means that traders are never short of inspiration, nor opportunities for learning.

The value of being able to connect with people of all levels of experience all over the world applies just as much in trading as it does in other areas of social interaction.

Indeed, access to other members of the trading community is important in three key respects:

1. To truly educate themselves about the markets, traders need to connect with people they might never normally meet in their day job or usual social circles. In real life, meaningful connections are perhaps made with a hundred or so people. Online, people can leverage the connection of thousands.
2. Diversity of thought is of the utmost importance in financial analysis. It’s just far too easy to miss things when one or a small number of people are reviewing an asset or a trade; you often need to get inputs from a variety of other sources to make a trade successful.
3. The trading community usually has insights into why a certain fundamental or technical looks the way it does, and that information is not always obvious or available to an individual, especially when they are just starting out.

As an example of why these connections are so important, imagine a company stock that’s been in the news a lot for its bull rally in the preceding weeks. A new trader may look at the stock, see that it’s on the up, and go long on the stock to try to profit. That all sounds fine, until another trader realizes the new trader’s hypothesis is based on only the 4h chart, and suspects that FOMO (fear of missing out) is playing a big role in the decision to go long. When the experienced trader looks at the weekly, she sees that the stock is about to hit a top that it hasn’t been able to break through for several years, and with relatively uninspiring fundamentals and lacklustre technicals elsewhere, there’s no suggestion the stock will break the ceiling this time, either. That experienced trader, via a social trading network, may caution against the trade idea, pointing out her own technical analysis, and in the end, save the new trader from a high risk trading decision.

Bottom line? The best insights come from piecing together the insights of other people as well as one’s own, and that’s impossible to do without a solid network of traders to fall back on.

2. The best way to evaluate trading performance is on a feature rich social trading platform

Traders are often obsessive about their performance, and there’s a very good reason why. Literally every decision that is made on which stocks to trade, in what quantities, and when to pull the trigger impacts how well the trade ultimately plays out, and that in turn affects the overall health of a trader’s portfolio (i.e. how much they profit and how much they can trade in future).

As such, traders are routinely on the look-out for platforms and tools that can help them to understand and improve their performance. Where better to get those insights than from a dedicated social trading network where users can not only comment on other people’s trades, but use data, charts, and other visuals to explain in detail their theories for why a trade turned out the way it did? In learning terms, there is no richer experience than collaborating with others on identifying patterns and uncovering otherwise unknown factors that could have affected a trade.

And that hard factual benefit is not to discount the emotional benefits of social trading networks, either. Trading is very demanding intellectually and emotionally, and traders need to have both the awareness of common mental conditions associated with trading (stress, addiction, burnout, etc.) and the resources to help prevent or manage them. Community is exceedingly powerful in this respect.

3. Collective knowledge can counteract harmful misinformation

Everyone knows that a good trade is based on thorough fundamental and technical analysis, careful market timing, and a wealth of other factors that mitigate risk. Yet, routinely, traders of all skill and experience levels make basic mistakes when they follow the hype, and that can cost them enormous amounts of money (especially on the short side). If you need an example of this, just think back to the GameStop (GME) drama of early 2021.

Whether we like to admit it or not, even the most dedicated of traders gets things wrong. When these traders have influence on websites like Twitter and Reddit, ‘getting it wrong’ can extend to mistakes throughout an entire community. Hype around earnings, upcoming IPOs, leadership rumors, and the like can provide an exciting trading environment, but it is an exceptionally volatile one, and for that reason alone, it’s one that most traders would do well to stay away from.

That said, if a trader is intent on fishing in choppy waters, they should consult as many sources as possible before setting sail. In this regard, content sharing on social trading networks becomes an instrumental feature for avoiding the misinformation that is so rife in hyped up events.

How to get started with social trading

If you want to experience all that social trading can offer and create your own network of traders to learn from, look no further than Traderverse. Traders on our platform routinely share their ideas and experiences to help others understand market events, learn the best strategies and tactics for different asset types, and make better investment and trading decisions. For help getting started, sign up at Traderverse.io or join us on our Discord or Telegram group.