The way I see it social trading is enabling anyone to copy a trade or an idea from anyone else in the social network where copy trading is the ability to copy a complete strategy from a trader or a group of traders and that strategy can be pre-vetted or can be self selected by a community of traders but the act of copying is done to the complete strategy as oppose to individual traders or idea.
Social Trading:
Social trading is more suitable in my opinion to the novice trader, someone who is looking to learn how to trade and is looking for good trading idea. The main benefits of social trading is that it significantly cuts the amount of time it takes a novice trader to analyze the market as he or she is offered a collection of ideas of other traders that have already analyzed the market and are already in the market. Social trading is a more effective way of trading for someone who is just learning the market could use some social support. The best use in my opinion of social trading is to Leverage ideas of others as supporting or objecting to ideas you have and develop on your own, the best way is to treat this like an indicator and use the data in order to make an independent decision. One of the cautions from Social trading is to enter a situation where the blind Leads the blind and therefore it’s important to use the information as part of a decision making process and not blindly copy ideas other individuals have.
Copy Trading:
Copy trading is suitable for individuals that like the market but don’t have the time to learn to trade it or don’t feel they can be successful trading it in the long run. You can think about copy trading as a simpler form of investing as oppose to trading and it’s important to approach it with the mindset of an investor and not the mindset of a trader. There are some important aspects that one should consider before copying someone else’s strategy and amongst them has to be a good understanding of the strategy and the risk parameters of the strategy being copied but cost, compensation scheme, accuracy in reporting performance, due diligence process over the providers etc. also have to be taken into account. Copy trading offers a level of transparency and control that is unparalleled of in the financial industry and this is the reason it’s gaining so much traction these days.
