Built on the same basis, Social and Copy Trading can be quite different when it comes to trading. They pretty much represent new possibilities in trading forex or binary options assets, allowing traders to follow how others do it, and placing their trades in the same way. If you’re a beginner in this world, both of them can be really helpful and useful. However, it’s important to understand both in order to choose which one will prove to be the best option for you.
If you’re just now starting to test the waters, I’ll give you some information regarding both. It’s important to learn their similarities before understanding their differences, if you really want to make the best choice for you and your investment goals. Without further delays, let’s start with the nature of copy and social trading.
Copy trading is suitable for individuals that like the stock market but still don’t feel they can be successful in trading it in the long run. In other words, it’s for the market enthusiasts that don’t really have time to invest, track or learn everything about it. Think about it as a simple form of investing! How? Copy Trading pretty much binds your account with another trader’s account. Which means that their trades reflect in your account, their profit is your profit, but their losses are also yours to bear. You don’t get to choose the open trade, so the only thing you can do when copy trading is to when to start or stop copying the trader. Basically, it works like a copy – paste system. But even the best traders can make mistakes by placing a bad trade, so there are a few aspects you should consider before copying someone else’s strategy. Firstly, make sure it’s a good trader (try analyzing his trading history and past investments). Secondly, always consider the risks – cost, compensation scheme, accuracy in reporting performance, and due diligence process over the providers. These parameters need to be taken into account.
We can say that copy trading is a part of social trading, as the second ends up being a more broader term. Word of advice? Social Trading is a more suitable option for the novice trader, as it’s proved to be a more effective way of trading for someone who is just learning the market – you sure could use some social support! Why? Mainly because you don’t let others manage your trades, but you’re able to use the information provided to make your own decisions, instead. Before you trade, you can analyze the market with a collection of ideas and tips from other traders that have already analyzed it and are already experts! These platforms usually have forums and chat rooms where you can discuss trading conditions and market fluctuations with other traders. You can choose which peer to follow – if you find their achievements profitable, you can copy it, and if not, you can leave it alone. Here, you have total independence.
Now that you know what they are, and even though they are most often used as synonyms in many places on the Internet, there are some fundamental differences you need to take into consider before choosing one of them. I narrowed it down to four important factors:
As you can see, the level of interaction can be quite different in these two fields. Think of social trading as a way of mingling in a social network, built by other traders, just for the purpose of progressing in forex trading or binary options trading. On the other hand, in copy trading, you rarely interact with the trader whose system you’re copying. The interaction between you and the trader you’re following is purely mechanical.
By being a part of a social network of traders you’re able to build up your trading system and assets. Social Trading will provide a far better learning experience, because new traders will have the opportunity to learn from the experienced ones. They are able to ask questions and improve their way as they go and learn about certain technical and fundamental skills, as well as the basis of certain types of trading.
Traders who copy trades do not know how and why certain trades are made, which may not be good for learning outcomes. As I’ve said previously, this category is suited to people with some experience but who simply do not have the time to study the charts and scour the market for trade opportunities. They would rather have someone do it for them.
Manual vs. Automated
In Copy Trading, traders simply set up some details, and the trades are automatically implemented on the trade copier’s account until he or she decides to stop. It has an automated nature, which can be a downside because you don’t have any control on the trade itself – the system does it for you. Contrarily, Social Trading is more manually oriented and leaves the control of trade executions in the hands of the investor.
Trading vs. Investing
You already know that trading involves a more active participation in the stock market. Knowing the process and which step you’ll make next, is of the utmost importance to go from from trade analysis to trade execution. This is a stamp of the Social Trading form, as it involves a process of learning from other more experienced traders who actively implement what is being learned. When it comes to investing, it connotes a more passive behavior. This is what copy trading is all about, as it involves virtually no active participation.
This brings me to my next point:
Which One to Chose?
Before you decide, you should read the maximum information about these two types of trading options. There are a few apps that not only can give you that knowledge, but also let you work with both of these processes. You can check the best ones on the market, at BestStockTradingApp.com.
Due to the fact that social trading is dominated by human activity and human interaction, it is overall easier and safer. In the end, you will be able to choose the best decision of whether to trade or not. You’ll also have more control over your portfolio and your trades. This option is perfect if you’re thinking about getting into the stock trading world, more and more, over time. Trust me, you’ll get to learn a lot about it!
On the other hand, copy trading literally doesn’t require much of you except for clicking the “copy trader” button (of course you should always try to make the best choice, regarding traders). There is no interaction and almost every aspect of the process is controlled by an automated software. This makes it difficult to trade the Forex market or perform binary options trading during news events, for example. If the trader wins, you win, but if they lose, you lose – it’s that simple. The downside is that if you pick a trader or they experience a bad streak, you can badly hurt your portfolio and your investments.
Lastly, it all comes to you. At the end of the day your choice depends on the amount of control you want to have over your finances, and amount of risk you’re willing to take. Therefore, if you want to have more control then you should go for social trading, you’ll always have the opportunity to learn from others’ mistakes. If you feel confident in your own abilities, but don’t have the patience and time to look at graphs and numbers, you can go with copy trading.
However, keep in mind that, whichever one you choose, losses are inevitable. It’s important to make a distinction between the two and make sure you pick the option you feel more comfortable with.