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What Are Top 3 Things People Get Wrong About Social Trading?

Investing successfully has always been a difficult task, especially for beginners. Even intermediate and advanced traders may find the 24/7, year-round nature of crypto markets difficult to navigate, as it’s a stark contrast to traditional markets that have operating hours and weekends.

Social trading platforms have become a popular option for new and experienced users alike, as they can both learn and make successful trades at the same time by asking questions to other traders and copying their moves. Most of the best social trading platforms also have a variety of trading bots that users can use out of the box or customize to their own specifications. Let’s jump into the top 3 things people get wrong about social trading crypto.

How does social trading work?

Misconception #1: It’s Different From Copy Trading

Social trading and copy trading are in fact ostensibly the same thing. There are some minor 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 their purchases and sales, asset distributions, or swaps. Both social trading and copy trading are likely to involve some sort of trading bot, whether in order to just copy moves of the trader you’re following, or to actually execute a strategy which has been given or sold to you.

The general idea of both also works the same for the trader you follow or copy. Experts can earn in a variety of ways and the platform that provides infrastructure can as well. It can be volume-based, for example, eToro charges no fees, but profits because of their spreads, so letting you copy for free still benefits them as they keep earning the spread while paying a portion to the expert. It can be subscription-based, where you either pay a monthly fee to the platform or expert. It can be fee-based, where you pay per trade or a commission of your profits to the expert and/or platform. Which you may want to use depends on your own preferences, and is why you should compare various crypto copy and social trading platforms.

While social trading places more of an emphasis on interaction between traders and sharing ideas, both types of platforms encourage commenting and providing feedback by users about trader’s 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 liked, followed, and positively commented about a trader’s moves or strategies, users can have more confidence in paying the fees to follow/copy that trader.

Misconception #2: There’s No Risk to Social Trading Platforms

As with any sort 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 just start copying a trader and never go back to check on how they’re doing, you could easily find that you’ve actually got a loss over time because they started making bad moves or changed their strategy to both of your detriment. While this isn’t something the expert trader would do intentionally, they can make the wrong investment decision and this will affect you if you’re mirroring their moves.

Additionally, if you’re using a platform that relies on trading bots, it’s a good idea to make sure the parameters that you or the expert set 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 then enter a bear one, it could have negative results.

Make sure to read feedback provided by users who follow the trader, check how successfully they’ve traded in the past, and keep an eye on them once you do follow them and you should be good to go.

Misconception #3: You Have No Control Over Results

You actually have a lot of control over your results when it comes to social trading crypto. Once again it’s about due diligence. Besides being able to see an expert’s track record before following and copying them, there are a ton 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 let change.

Basically, as platforms have shifted from being pure copy trading to more social trading, they’ve created risk parameters that you can set as a user. By setting these in advance, in conjunction with researching an expert before following them, you can mitigate any potential negative results and perhaps even guarantee yourself positive ones. The main thing to keep in mind is that you’re not forced to do everything that the expert does, giving you more control over your outcomes.

Closing Thoughts: Social Trading Doesn’t Mean Brain-Dead Trading

Social trading is likely to become more popular over time as more people look to profit and learn about how to trade successfully. With that in mind, due diligence remains key.

Whether you’re already social trading or thinking about doing it, you need to research the platform you want to use, the parameters that can be set with it, fees they charge, and their available exchanges. Doing all this will give you the best chance to succeed with social trading.

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About the Author

Evan Jones

Evan Jones was introduced to cryptocurrency by fellow CryptoVantage contributor Keegan Francis in 2017 and was immediately intrigued by the use cases of many Ethereum-based cryptos. He bought his first hardware wallet shortly thereafter. He has a keen and vested interest in cryptos involving decentralized backend exchanges, payment processing, and power-sharing.

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