Crypto Social Trading: What Is It and How Does It Work? - MUO - MakeUseOf

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Have you tried trading cryptocurrencies without success? Don't worry; that sounds like most people.

Or perhaps you can trade but lack time to conduct the necessary analysis; then you should consider participating in social trading. The service lets you manually or automatically follow professionals with a track record of trading success and have the same results as them.

In this article, we will describe what social trading is and how it works in crypto trading.

Social trading is an innovative practice that allows would-be or novice traders to interact and copy the trades of more experienced crypto traders. Copying trades helps followers enjoy the high returns associated with day trading with little to no trading effort from them.

Social trading allows crypto traders to interact with other traders, combining social interaction with trading. The practice ranges from traders discussing trades and strategies on social platforms or forums to copying the trades of other traders. The term "social trading" is also used to cover copy trading and mirror trading activities since traders copy and mirror what other traders do.

Social trading platforms differ in how they carry out their services. However, the underlying principle is the same: Investors copy the trades of more experienced traders. The copied traders are usually referred to as the leaders, while the ones copying the traders are the followers.

Seeing that the scope of social trading is a little wide, let's look at how it works in a little more detail.

Copy Trading

Copy trading allows traders to copy the trades of more experienced ones, who, in turn, earn a predetermined amount or percentage as profit.

In copy trading, you decide the amount you want to invest, even though platforms typically have a minimum investment amount. You then copy everything the leaders do automatically in real-time. This style of social trading works for those with little to no knowledge of trading because they don't need to have any input while still getting the same returns as the traders they follow.

Signal Providers

Signal providers give signals and trading tips to other traders. For example, they sometimes use social media channels to provide trading signals to their subscribers. A signal-providing service can also be in the form of automation that reveals market or traders' sentiments and uses some technical indicators to provide traders with real-time market information serving as trading signals.

There is usually little to no interaction among traders on these platforms. The followers also need to have some level of knowledge to understand and execute the signals provided.

Trading Forums

These are platforms that allow traders to interact with one another before initiating trades. They discuss trading strategies and styles, where to enter and exit trades, etc. Many trading platforms have forums where clients interact to share what they are doing and learn from one another. This style of social trading helps beginner traders learn from more experienced ones. It also requires the follower to have a basic knowledge of trading.

Below are some advantages of crypto social trading.

1. Convenient Way for Beginners to Start

It takes time for beginners to find their way around the crypto market and more time to form a reliable crypto trading strategy. Copy trading offers a more convenient way to get started in the crypto market since you do not need to know how the market works to make money.

2. Saves Time

Social trading saves time and effort because you can (potentially!) make money without having to trade yourself. You can easily combine it with your day-to-day activities or a full-time job. Some experienced traders also participate in social trading to earn passive income as they engage in other activities.

3. Helps Traders Interact and Learn

Social trading makes it easy to associate and interact with other crypto traders, as in the case of trading forums. Traders can discuss their thoughts about trades and then choose the one that seems like the best. They can also learn from more successful traders by watching how they trade and conduct their analyses.

4. Freedom to Choose the Best

Most copy trading platforms display the past trading performance of various professional traders, allowing you to select the one with the trading strategy or result with which you are most comfortable. This way, you can, to an extent, predict the type of result to expect. However, do not forget that past successes do not guarantee future results in trading. The fact that a trader has done well in the past does not guarantee that he will have good results in the future.

5. Gives Some Control

Many social trading systems make it possible for you to have a form of control over your account. You can choose to opt-out of trades that you are not confident about. You can also close losing trades to limit your losses. If you lose faith in a trader, there is always the opportunity to leave him for another.

6. A Potential Source of Income for Experienced Traders

Experienced traders can earn more than they would ordinarily by providing copy trading services or being signal providers. They could earn money by entering into a profit-sharing agreement with their clients or offering a subscription package to which their clients would constantly subscribe.

Below are some drawbacks of involving in crypto social trading.

1. Potential Loss of Deposit

We cannot deny that professional traders can make mistakes or have losing streaks, leading to losing a major part or even all of their capital.

Inexperienced traders who have found it hard to achieve consistently good results through trading could create a signal-providing service to earn money. There is no doubt that traders following such signals cannot be successful in the long run.

2. It Could Be Misleading

Social trading could be confusing or misleading, especially when suggestions from forums and signal providers do not confirm your analysis. Having suggestions from many people can also confuse traders and, in the long run, become unproductive.

3. Inability To Master Trading

As much as you can learn to trade by studying and following successful traders, you might find it hard to carry out your trade analysis yourself due to your overreliance on professionals. This won't be an issue if you are okay with copying other people's trades, as long as they end in profit. However, if your goal is to master how to trade yourself, you should take your time to learn about the market, build your strategy, and continuously make it better.

With the popularity of social trading and its effectiveness for traders, many crypto trading platforms have introduced social trading opportunities for their clients. Some platforms have also been developed specifically for this purpose. This section will consider four platforms where you can carry out crypto social trading activities.

1. eToro

eToro is a social trading platform for trading multiple assets. It allows its clients to trade forex, stocks, commodities, and other CFDs in addition to cryptocurrencies.

You can invest as little as $200 on the platform and copy up to 100 trades simultaneously. You can also invest up to $200,000 in one trader.

2. Zignally

Zignally started in 2018 and started its copy trading model-sharing mode later on. The profit-sharing model integrates professional traders, who use their trading capital to generate income for their followers. The platform provides investors with strategies, insight, and tools to choose the best digital asset managers.

3. Shrimpy

Shrimpy started in 2018 as a crypto portfolio management platform where you can easily link all your exchanges and wallets to manage your crypto assets. Not long after, it introduced its social trading service to connect a community of crypto traders.

All you have to do to enjoy the social trading services is connect your exchange(s), view the leaderboard to find a leader that is right for you, and start to follow. In addition, the service allows the integration of more than 30 exchanges and wallets.

4. CopyMe

CopyMe also lets investors copy traders automatically and in real time. You can follow one or multiple experts on the platform without sending out any funds. There is no profit sharing on CopyMe. You only have to pay the monthly subscription fee set by the expert trader(s) you follow. The platform supports exchanges like Binance and BitMEX.

If you have not been able to achieve consistent trading success, don't have the time to trade, or want to diversify your portfolio, you should consider participating in crypto social trading. Over time, institutions and individuals with large funds have employed professionals to trade and handle their funds. Now, this opportunity is open to all through social trading.

Make sure you are patient enough to choose the right trader and strategy. In everything, do not forget that positive results are not always assured in trading.

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Crypto Social Trading: What Is It and How Does It Work? - MUO - MakeUseOf
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