Investing successfully has always been a difficult task, especially for beginners. Even intermediate and advanced traders may find it difficult to navigate the 24/7/7 nature of the crypto markets, as it stands in stark contrast to traditional markets that have opening hours and weekends.
Social trading platforms have become a popular option for both new and experienced users, as they can learn and make successful trades at the same time asking questions to other traders and copying their moves.
Most of the best social trading platforms also have a variety of trading robots that users can use immediately or customize to their specifications. Let’s jump into the top 3 things people get wrong about social trading cryptocurrencies.
Misconception #1: It’s different from copy trading
Social trading and copy trading are in fact apparently the same thing. There are some small differences between the two concepts, but overall the two have the same ethos. Both social trading and copy trading allow you to copy and/or mirror another trader’s portfolio, whether it’s buying and selling, asset distributions, or swaps. Both social trading and copy trading are likely to involve some sort of trading bot, either to copy the moves of the trader you’re following, or to actually execute a strategy that was given or sold to you.
The general idea of both works the same way for the trader you follow or copy. Experts can earn money in various ways, and the platform that provides the infrastructure can do so as well. It can be volume-based, for example, eToro doesn’t charge commissions, but profits because of their spreads, so letting yourself be copied for free still benefits them as they continue to earn the spread while paying a portion to the expert. It can be subscription-based, where you pay a monthly fee to the platform or expert. It can be based on commissions, where you pay per trade or a commission of your profits to the expert and / or platform. Which one you might want to use depends on your preferences and that is why you should compare various crypto copy and social trading platforms.
While social trading places more emphasis on interaction between traders and sharing ideas, both types of platforms encourage comments and provide feedback from users on the traders they follow. Social trading is really just the next step in the evolution of copy trading. By being able to see how many people have appreciated, followed and commented positively on a trader’s moves or strategies, users can have more confidence in paying commissions to follow/copy that trader.
Wrong Idea #2: There is no risk to social trading platforms
As with any type of investment, due diligence is always a good idea. While the trader you copy may have been successful in the past, and even during the first X period of time you follow and copy them, things can easily change. If you start copying a trader and never go back to check how they are doing, you could easily find that you actually have a loss over time because they started making wrong moves or changed their strategy to your detriment. While this is not something the experienced trader would do intentionally, they can make the wrong investment decision and this will affect you if you are mirroring their moves.
Also, if you are using a platform that relies on trading bots, it is a good idea to make sure that the parameters set by you or the expert make sense for the current market conditions. Strategies for bull and bear markets are different, so if you simply copy a strategy that works during a bull market and then insert a bearish one, it could have negative results.
Be sure to read the feedback provided by users who follow the trader, check how successful they have traded in the past and keep an eye on them once you follow them and you should be good to go.
Misconception #3: You Have No Control Over the Results
You actually have a lot of control over your results when it comes to social trading cryptocurrencies. Again, it’s about due diligence. In addition to being able to see an expert’s track record before following and copying it, there are plenty of tools provided by social trading platforms to give you more control over the results. These can be limits on the number of trades you’re willing to copy or a limit on the amounts you’re willing to change.
Basically, as platforms have gone from being pure copy trading to more social trading, they have created risk parameters that you can set as a user. By setting them up in advance, combined with researching an expert before following them, you can mitigate any negative outcomes and perhaps even guarantee you positive ones. The main thing to keep in mind is that you are not forced to do everything that the expert does, giving you more control over your results.
Social trading does not mean brain-dead trading
Social trading is likely to become more popular over time as more and more people seek to profit and learn how to trade successfully. With this in mind, due diligence remains critical.
Whether you’re already doing social trading or thinking about doing so, you need to research the platform you want to use, the parameters that can be set with it, the fees they charge, and their available trades. Doing all this will give you the best chance of success with social trading.