The global finance industry has evolved tremendously over the course of the last decade or so. In this regard, one of the more interesting developments to have emerged from the world of investments is the rise of ‘social trading’, a form of dealing that enables independent investors to basically “copy and execute” the strategies of their peers, experts as well as other more experienced traders.
Thanks to their relatively automated setup, social trading platforms stand to serve as an ideal vehicle for those just starting out in the world of crypto. Furthermore, it can even benefit experienced traders, since it provides them with a whole host of detailed insights in regard to things like current market mentality and projected momentum shifts.
Also, what makes social trading unique from ‘copy trading’ — another strategy that entails investors replicating the strategies of others — is the element of social media interaction. By making use of such social trading platforms, investors can not only read and deploy the strategies of various experts but they can also interact with these individuals (as well as others operating within the ecosystem) directly.
This ability to communicate with other investors — while facilitating one’s daily trades — has been noted by many experts as being a game changer, especially since it alters the decision making process in a big way.
Crypto and social trading — a symbiotic relationship
Over the course of the past few years, social trading has garnered a lot of traction globally, especially across the global cryptocurrency landscape. This could, in part, be due to the fact that while most markets operating within the realm of traditional finance tend to follow established patterns governed by historical data, the crypto market has the tendency to function in a relatively haphazard manner, with volatility being the norm rather than exception.
As a result, individuals who may not be confident in their ability (or may share a smaller risk appetite) to trade cryptos may prefer to defer their investment decisions to certain experts who have a track record of raking in solid profits from their short and long term trading strategies.
What to consider when employing social trading platforms?
Straight off the bat, most crypto investors tend to look at the historic performance of the trading strategies they may be looking to employ. In this regard, most individuals prefer strategies that are sustainable in the long-run — allowing for regular profits — rather than short bursts of income.
Furthermore, it is extremely important for digital asset traders to assess their individual risk appetites and see whether their market values are in alignment with that of their chosen experts. For example, while there are some traders who love to gamble and take heavy risks while day trading, there are others who may have a more laid back, long-term based approach.
Lastly, it is worth noting that it is always better to trust strategy providers who are forthcoming and approachable — be it via their social media accounts, email addresses, etc — online as compared to those individuals operating under pseudonymous identities.
The advantages of crypto social trading
The global crypto community seems to be growing at a rapid pace right now and in that sense, social trading helps provide investors with a new way through which they can interact with their peers, allowing them to sharpen their trading acumen in the process. Also, as pointed out earlier, the crypto market is subject to a lot of routine volatility and thus by learning from the mistakes of others, investors can really help mitigate their long term losses.
To help users with their social trading efforts, there are currently a number of easy to use platforms available in the market today. For example, the DTrade by Decoin Exchange ecosystem allows crypto enthusiasts to communicate and share their personal knowledge with one another. As a result, they can not only take part in live trading sessions but also execute real-time buy/sells with the help of named experts (and much more).
Furthermore, the platform lets users assess the performance of other traders based on the returns that they are able to generate. Not only that, novice investors can learn from professionals — by watching a live session or auto trading with them — while experienced traders can use the platform to showcase their skills in front of a wide audience base.
Unique learning opportunity
Recently an independent crypto trader by the name of RookieXBT took part in an investment challenge, wherein over the latter half of 2020 he showcased all of his trades publicly via his Twitter account. As a part of the entire process, he was able to transform his life-savings of 5 BTC — touted to be worth around $35,000 at the time — into a whopping 40+ BTC in front of the entire world.
The reason for highlighting this example here is because it highlights one of the core advantages of social trading, i.e. it allows novice investors to learn from the time tested tactics of experienced individuals who have been involved with this space for a long time.
By observing the buy/sell patterns of other established traders — especially those who are able to draw consistent profits — it can become possible for budding crypto investors to learn new ways through which they can spread out their portfolios efficiently as well as minimize their potential losses.
May breed complacency and laziness
One of the biggest and most obvious cons of crypto social trading is that it tempts investors into becoming lazy, especially as it leads many people to believe that all they need to do in order to be successful is to piggyback on the “tested market strategies” of other successful traders.
However, this method can backfire in a variety of ways and can catch investors off guard, especially when they start losing large sums of money.
Potential distortion of one’s perception
Another relative downside of social trading is that it can oftentimes confuse younger investors, making it difficult for them to identify which traders they should ideally follow. For example, even if a person can see all of an expert’s market calls, that does not guarantee any sort of success for them.
Lastly, it should be pointed out that some traders are not really comfortable with sharing their real-time trades as it may not suit their natural disposition.