This refers, for example, to the area of trading with binary options or foreign exchange, because in this segment there has certainly been the most progress in recent years. Meanwhile, there are well over 100 different Forex brokers and binary options brokers on the market, which present their respective offers. A relatively new development, which particularly affects these two trading areas, but is also increasingly making inroads into securities trading, is the so-called social trading.Simplified, social trading is a way in which traders can communicate with each other and, above all, learn from each other.
What are the characteristics of social trading?
Once again, it is a term from the English-speaking world, which is also used in Germany by more and more speculative investors and traders. Derived from social media, social trading refers to a tendency that allows traders to communicate with each other and, depending on its characteristics, to copy trading orders.
Somewhat generalized, social trading is primarily a module that is intended to partially replace or at least supplement strategies and various trading systems. So far, however, there are not too many binary options and forex brokers that offer social trading, e.g. Exness Asia or GKFX. On the other hand, there is also a tendency in this area that there are more and more providers who focus exclusively on the area of social trading and then appear on the market as so-called social trading platforms.
In most cases, social trading works in such a way that all traders active on the corresponding platform are divided into two groups. On the one hand, there are professional traders who voluntarily publish their trading orders or give other traders the opportunity to view them. The other group consists mostly of traders who have not yet gained much experience in trading binary options or forex pairs. This group of traders is often called followers, because they can follow the behavior and trading orders of professional traders. In the second step, the followers then have the opportunity not only to view the trades of the professional traders, but also to copy them through certain functions and thus place the identical trading order. In most platforms that offer social trading, professional traders are additionally classified into certain performance levels or categories. Moreover, followers can save a certain number of professionals so that they are automatically informed about new trading activities of these traders.
What is the return on investment in social trading?
If you are a speculative investor and would like to know what returns can be achieved with social trading, you will not be able to get a serious answer. Just as it is completely impossible to name an average return when trading with foreign exchange and binary options, this also applies to social trading. Since social trading takes place especially in the areas of forex trading, CFDs trading and binary options trading, the returns can range from ten percent to several hundred percent. However, it is just as possible for the follower to suffer a total loss with his stake.
Since the main feature of social trading is that the so-called follower copies the trading orders of a professional trader, the possible return depends 100 percent on how successful this trading order of the professional trader is. If we take binary options as an example, the possible returns here usually range from 70 percent in the area of normal options to 500 percent in the high-yield area. The returns can be even higher when trading CFDs and foreign exchange, but here, of course, there is also the risk that the trader suffers a total loss in social trading.