Social network copy trading or just social trading is another way to utilize the expert’s knowledge & skill in forex trading. Social trading sites initially are set up for traders and investors to share information, strategies and tips from all over the world. They allow people to view what trades other professional traders are making, and when they are making them. By connecting traders from all over the world into a network and sharing their views and trades real-time, investors can use that information to make social rather than fundamental or technical trading decisions.
Social trading allows traders to trade online with the help of others and some have claimed shortens the learning curve from novice to experienced forex trader. Traders can interact with others, watch others take trades, then duplicate their trades and learn what prompted the top performer to take a trade in the first place. Despite the influx of new social trading platforms in the early 2010s, numbers still continued to increase as brokers see them as new growth engines for converting new and retaining old clients.
One of the key challenges in social trading is that many of the traders on such sites are punting and betting that their trader is successful once they begin copying their trades, and have absolutely no idea how or what the trader is trading. There is habit of a herd mentality with the assumption that a trader with many followers should be good. There is often insufficient information on such sites for anyone to make an informed decision as to whether or not to invest in such systems.
The biggest disadvantage in social trading is that your trade will loose exactly same as the expert you follow if he/she loses. This is unavoidable, there is nothing you can do to intervene when one of their trades takes a turn for the worse, and once the funds are lost there is little way to retrieve them. You might be able to generate huge profits by integrating others ideas in your own game plan. However, there is no guarantee that these strategies will work infallibly on a long-term basis.
At the end of the day, it is still a human at the other end managing trades. Even if you are copying an expert advisor, there is a person who is ensuring the EA stays online. Since the person you are copying is often half way around the world, there is always the chance that he or she makes a mistake which wipes out the account. In other words, you can’t really know who you are investing with.