Social trading allows investors to share information and copy trades from other investors. Since its inception, social trading has vastly improved the trading performance of investors. There is another profound change that social trading has brought about and that is the narrowing of the performance gap between retail traders and institutional traders. Institutional traders have always had access to more information than retail traders and this has allowed them to outperform most retail traders. However, social trading has finally enabled retail traders to access that same information that has eluded them for so long.
Access to Trading Information
One of the biggest advantages that institutional investors had over retail investors was access to knowledge. Institutional traders are able to receive much more information in a shorter amount of time. The everyday Wall Street trader has access to information from Reuters and Bloomberg that is updated every few milliseconds. Firms like Goldman Sachs have hundreds of employees who analyze information from the market and distribute that information internally.
This information can be accessed by retail traders, but it is nearly impossible to analyze all the information or even know which sources are credible. Additionally, there are many models that are used to identify the variables that affect currency values but knowing which model to use requires special knowledge. These factors made it difficult for retail traders to successfully compete against institutional traders.
Social Trading: A New Way to Trade
The popularity of social trading has been increasing ever since its creation. This trading method enables retail investors to participate in a more involved role by providing expertise and information to others. Social trading removes the barriers of financial market trading and provides transparency on how money is being invested by supplying real-time information on trades as well as access to expert discussions on trading strategies. Social trading networks enable retails investors to access the same wealth of knowledge that institutional investors have enjoyed.
These networks are made up of people from all over the world, each with a unique experience in trading. This diversity has created the largest bank of investment knowledge. Most traders understand the value of accessing a large and diverse knowledge bank and because of this, social trading activity has increased and more traders are realizing its potential. Social networks are extremely popular and have the potential to increase trading volumes. This collective knowledge allows traders with any amount of experience to access important information that can be used to make educated trading decisions.
Equalizing the Competition
When online financial trades are analyzed, it is clear that copying trades and sharing information with experts does have a positive influence on trading performance. In order to analyze the success of social trading, the performance of trades that are placed with social trading networks can be compared to overall trading success. The results of this comparison indicate that trades made with social trading networks generate a higher than average profit on individual trades as well as a greater number of profitable trades.
As experts on social trading networks gain more experience and create a greater following, their skill will be leveraged further and this will increase retail trading performance to the levels of institutional investors. One of the biggest advantages of social trading is that the success of traders is not only determined by financial gain but it is also recorded, tracked and shared with other traders so they can benefit and learn. This allows average traders to learn faster, increase performance and add valuable experience to their portfolios.
What did you think about this post? We welcome your comments and feedback. Share your thoughts with us here at eToro.
Note: Past performance is not an indication of future results. This post is not investment advice. CFD trading bears risk to your capital.
ETORO
It's Free
This comment has been removed by the author.
ReplyDelete