Social Trading: What Is It and How Is It Changing the Market?

For decades, traders of stocks and commodities have kept their insights and market predictions under lock and key, withholding valuable information from the public.

In recent years, however, a new trend has emerged that is sparking more interest from retail clients towards the investment market.

Now traders are sharing expert insights and information on dedicated platforms that are accessible to all.

This new form of information sharing allows others to benefit and profit by following these expert bits of advice and predictions.

Even new investors can copy the experts and keep track of their actions on the market.

This is social trading, and it is changing the way retail clients participate in the investment market. 

In this article, we will take a more in depth look at what social trading is and where it has emerged from.

Then we will take a look at the potential benefits and drawbacks of social trading.

And finally, we will explore the future of social trading in the marketplace.

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What Is Social Trading?

The structure of the stock market has long relied upon the expert insights of dedicated professionals, and traders have been willing to pay an arm and a leg for access to those insights.

Current trends and relevant company updates are key for market traders.

Since that information was not widely available in the past, anyone interested in participating in the stock market had to rely on those in the know, professionals with access to exclusive intel. 

With the rise of social networks and online forums over the last decades, however, the way information is recorded and who has access to it has shifted.

In social media communities, such as Reddit, there are specific conversation threads with hundreds of thousands of participants, all communicating about what they are planning to buy and sell. 

Now stock market info is no longer an exclusive realm limited to those with access.

With the rise of social media, social trading has emerged. In social trading, people share their stock market insights and strategies.

The rise of social trading is part of a trend towards more transparency and accessible information in general. 

The Benefits of Social Trading

Not everyone is excited by the prospect of making investment decisions based on social media posts and online forum discussions.

But for those who value word of mouth credibility, open conversations about the merits of investing in a particular company provide ample peace of mind.

Reviews and consumer ratings have become a ubiquitous part of our daily lives, so researching stock market decisions in a similar way is only natural for plugged-in consumers. 

Social trading particularly draws in younger investors who are interested in accessing performance reports stripped of bias.

Plus, statistics listed in social trading platforms often reveal a much clearer link between the costs and potential returns of a particular trade.

The language used in social trading platforms makes trade secrets comprehensible to any investor just starting out.

Specific industry jargon is explained in layman’s terms, so anyone can understand the information they are reading and make informed decisions about where to buy and sell. 

One of the fundamental benefits of social trading is that the people you are copying are likely to be more trustworthy since they are putting their money where their mouths are, so to speak.

Investors who share on social trading platforms are not just advising others, but also following their own advice.

So interested consumers can track how their actual investment decisions pan out.

And consumers will know that they are being guided in a genuine direction, unlike with a traditional professional trader, who may not be willing to invest their own money in the same funds that they recommend to their clients. 

Potential Risks of Social Trading

While there are plenty of benefits to be gained from social trading, there are also some potential risks that must be considered.

One issue that pervades this new form of trading is that many of the opinions and insights shared on social trading platforms are unregulated.

That means that people may be investing their money based on information from unqualified “experts”.

New investors in particular should be wary of following any one person’s advice too closely, and should always back up their research with additional sources. 

Additionally, people new to investing may make rash decisions, or overestimate the value of any individual investment.

No matter how savvy an expert may be, there are always factors outside of their control that can be impossible to predict.

So new investors should temper their investments with a bit of restraint, avoiding putting all their cash in one trade. Retail investors should always do some initial research before investing.

Certain fundamental principles, like keeping a diversified portfolio, are key to understanding how to follow experts’ shared advice in a smart way. 

A Growing Market

Social trading is expected to become a lucrative multibillion dollar market. As social trading grows, its impact will continue to be felt across all investment sectors. One of the best ways to get started with social trading is to download a free social trading app, like Wealthface. 

Wealthface taps into this powerful new mode of gathering investment data, keeping app users up to date on the latest investment trends and shifts in the marketplace.

Rather than having to research the different aspects of a trade in newspapers or trade magazines, social trading platforms provide a streamlined process where consumers can track their trades, automatically copy the moves of investors they follow, and even store their investment profits in digital wallets. 

Final Thoughts

With the rise of social media and review culture, social trading has emerged as a way for retail investors to penetrate the previously exclusive realms of industry insight.

Now everyone and anyone can participate in open conversations with stock market experts, which affects the way the entire market runs.

Social trading allows greater transparency and accessibility, but it can be misleading for new investors who are too quick to follow a single expert’s advice.

As the social trading market continues to grow, new forms of regulation will continue to emerge, protecting consumer interests. 

Investors and consumers can start following industry insights right from the convenience of their smartphones.