What is Social Trading, How Does It Work and How to Get Started?

In the world of online trading, investing is no longer an activity reserved for professionals or those with large amounts of capital. Thanks to social trading, a phenomenon that combines the dynamics of social media with investment strategies, anyone can become a trader.

Thanks to social trading, in fact, those who do not have extensive knowledge of financial markets, stocks or Forex can use real-time analysis from traders with more investment experience. This form of collaborative trading has democratized access to the markets, allowing users to copy the operations of more experienced traders and learn directly from their experience.

But what exactly is social trading? How did it come about and why has it become so popular? And above all, what are the best platforms to use to get started? We explore every aspect of social trading, providing a detailed guide to take your first steps in this fascinating world. Whether you are a novice or an experienced investor, you will discover how to make the most of this innovative opportunity.

What is social trading?

Social trading is a form of investment that combines the principles of social media with financial trading. Instead of relying exclusively on technical analysis or fundamentals, users can observe, interact and copy the strategies of other, often more experienced, traders. This approach is made possible by dedicated platforms, which act as real social hubs for traders from all over the world.

The key concept of social trading is transparency. In fact, each trader has a public profile that shows his performance, the level of risk and the strategies used. This allows users to make informed choices about who to follow and copy. Additionally, many platforms offer interactive features, such as forums, chats, and news feeds, which encourage information sharing and collective learning.

Another distinctive feature is the ability to automatically copy another trader’s trades, a feature known as "copy trading". This mechanism is particularly useful for beginners, who can start investing without in-depth knowledge of the markets. However, it is important to emphasize that social trading does not eliminate the risks associated with investing: following a trader does not guarantee profits and it is essential to make a careful choice based on concrete data.

The difference between social trading and copy trading

We have already mentioned and analyzed both of them, but a precise distinction must be made. Often confused, social trading and copy trading represent two complementary but distinct aspects of collaborative investing.

Social trading is a form of investing that encourages interaction between members of a community. Users can observe the trades of more experienced traders, read their comments, discuss strategies and access educational content. This approach aims to create an environment where traders, both beginners and experts, can learn from each other, improve their skills and develop personalized strategies.

Copy trading, on the other hand, is a specific feature that allows users to automatically replicate the trades of an experienced trader, usually selected based on their historical performance, risk level and strategy. This option is ideal for those who do not have the time or expertise to analyse the markets on their own, but still want to participate in trading.

One of the main differences is that social trading is more interactive and oriented towards learning, while copy trading is a more passive solution, focused on immediate results.

The birth and evolution of social trading: why did it catch on?

Social trading was born as a natural evolution of the digitalization of financial markets and the growing spread of social media. The first platform to integrate social trading functions was eToro, launched in 2010. Since then, the sector has experienced exponential growth, fueled by the desire to make trading accessible to a wider audience.

Among the factors that have contributed to the success of social trading, there are the aforementioned transparency and accessibility. In the past, financial markets were often perceived as complex and opaque, accessible only to an elite of professionals. With social trading, anyone with an internet connection can access the same opportunities, observing firsthand how the best traders manage their trades.

Technological advances have also played a crucial role. The spread of smartphones and mobile apps (which have avoided monopoly but encouraged competition between different platforms) has made trading easier and more immediate, while advanced algorithms have improved the accuracy of analysis and forecasts. Furthermore, the COVID-19 pandemic has accelerated digitalization in many sectors, including finance, pushing a growing number of people to seek alternative forms of online earnings and investments.

Another determining factor has been cultural change. The new generations, accustomed to sharing information and collaborating online, have enthusiastically embraced a trading model based on sharing and collective learning. The result is a more dynamic and inclusive market, in which anyone can participate and try to prosper. Social trading is, therefore, also democratic.

How Social Trading Works in Practice

The name “social trading” comes from the fact that this phenomenon takes a lot of inspiration from the major social networks, such as Facebook, X (formerly Twitter) and LinkedIn. And, like them, it is an environment of showcase, socialization and communication. Seen as the absolute evolution in the world of investment, social trading is far from simple rumors among investors or dubious trading signals present on the market.

Let’s start with a simple example to understand what social trading really is:

Gabriele_Trader closed a BUY position on GBP/JPY at 121,344. Profit: 35 pips.

When Gabriele_Trader closes his position on the pound-yen exchange rate, everyone can see what this investor’s strategy is on Forex - even you. If you like Gabriele_Trader’s investment style, you can also easily decide on his entire strategy, what he does, his statistics and invest like he invests.

If we were to summarize social trading in defined steps, we could say that it can be divided into a few main phases.

• Creating a profile: The user registers on a social trading platform and creates a personal profile. Here, they can specify their investment goals, available capital and acceptable level of risk.
• Trader observation: Once registered, the user can explore a wide range of experienced traders. Each profile displays key data such as historical performance, adopted strategy, risk level and current portfolio. This allows them to accurately assess who to follow.
• Social interaction: Platforms offer interactive tools such as forums, news feeds and chats, where users can discuss strategies, ask for advice and share opinions. This creates a collaborative environment, useful for both beginners and experts.
• Copy trading: One of the most popular features of social trading is the ability to automatically copy another trader’s trades. To do this, simply select a trader to follow and set the capital to dedicate to copying. From that moment on, all the operations carried out by the chosen trader will be automatically replicated in the user’s portfolio.
• Monitoring and management: even if copy trading can be automated, it is essential to regularly monitor performance. Users can decide at any time to stop copying, change settings or diversify their portfolio by following other traders.

One of the most interesting aspects of social trading is the possibility of learning by observing. Users can analyze the strategies of the best traders, participate in discussions and access educational resources offered by the platforms.

What are the advantages of social trading?

There are a long list of reasons why it is worth even trying the experience of social trading.

• Social trading saves you time. The analyses you need, along with all the additional information, have already been done and made public by at least one other trader. Just to give you a comparison: Goldman Sachs needs hundreds of analysts to have a clear vision of market opportunities.
• Social trading saves you money. All the savings you will record, for example, you can use to invest in larger positions. No one, alone and without money, can think of managing a real-time database full of trading ideas like the one offered by social trading.
• Social trading is more convenient. Compared to traditional investment channels; the commissions applied are significantly lower:
• Social trading allows you to receive training practically free. Instead of taking trading courses that can cost thousands of euros, social trading allows you to learn directly in the field thanks to just observing the strategies of successful traders.

Another strong point of social trading is that it integrates information from the most important international news agencies such as Bloomberg, Reuters and CNBC.

The best social trading platforms today

• Among the most popular and established platforms is eToro, a pioneer in the industry, which has built a community of millions of users from all over the world. eToro stands out for its intuitive and user-friendly system, which allows users to observe the operations of other traders, comment on their strategies and even automatically copy the portfolios of more experienced ones. In addition to a wide range of assets, including shares, cryptovalute and raw materials, eToro offers advanced analysis tools and educational content to help traders grow over time.

• Another notable platform is ZuluTrade, which allows you to rank professional traders based on metrics such as risk level, historical performance, and number of followers. This feature allows users to make more informed decisions about who to follow or copy, reducing risk and maximizing the opportunity for success.

• For those looking for a more integrated approach, NAGA is an excellent choice. With its comprehensive ecosystem that includes social trading tools, digital wallets, and a social network for traders, NAGA fosters a deeper connection between users, making the experience more dynamic and engaging.

• Finally, it is worth mentioning TradingView, a platform that, while best known for its advanced technical analysis features, has also established itself as a social traders’ space. Users can share trading ideas, custom charts, and comment on market movements, creating a collaborative learning environment.

Original article published on Money.it Italy. Original title: Cos’è il social trading, come funziona e come iniziare