What is it and how does it work?

by Arthur · September 12, 2022

Have you tried trading cryptocurrency without success? Do not worry; it sounds like most people.

Or perhaps you can act but lack the time to perform the necessary analysis; then you should consider participating in social trading. The service allows you to manually or automatically follow professionals with a record of trading success and have the same results as them.

In this article we will describe what social trading is and how it works in crypto trading.

Social trading is an innovative practice that allows potential or novice traders to interact and copy the trades of more experienced crypto traders. Copy trades help followers enjoy the high returns associated with day trading with little or no trading effort on their part.

Social trading allows crypto traders to interact with other traders, combining social interaction with trading. The practice ranges from traders discussing trades and strategies on social platforms or forums to copying trades of other traders. The term “social trading” is also used to cover copy trading and mirror trading since traders copy and mirror what other traders do.

Social trading platforms differ in how they perform their services. However, the underlying principle is the same: Investors copy the trades of more experienced traders. The copied traders are usually referred to as the leaders, while the copy traders are the followers.

Seeing that the scope of social trading is a bit broad, let’s look a bit more in detail at how it works.

Copy trade

Copy trading allows traders to copy the trades of more experienced ones, who in turn earn a predetermined amount or percentage as profit.

In copy trading, you decide the amount you want to invest, although platforms usually have a minimum investment amount. You then copy everything the managers do automatically in real time. This style of social trading works for those with little or no knowledge of trading because they don’t need to have any input while still getting the same returns as the traders they follow.

Signal providers

Signal providers provide signals and trading tips to other traders. For example, they sometimes use social media channels to provide trading signals to their subscribers. A signal providing service can also be in the form of automation that reveals market or trader sentiment and uses some technical indicators to provide traders with real-time market information that acts as trading signals.

There is usually little or no interaction between traders on these platforms. The followers must also have a certain level of knowledge to understand and carry out the signals given.

Trade forum

These are platforms that allow traders to interact with each other before starting trades. They discuss trading strategies and styles, where to enter and exit trades, etc. Many trading platforms have forums where clients interact to share what they are doing and learn from each other. This style of social trading helps beginners learn from more experienced people. It also requires the follower to have basic knowledge of trading.

Below are some advantages of social crypto trading.

1. Practical way for beginners to start

It takes time for beginners to find their way around the crypto market and more time to create a reliable crypto trading strategy. Copy trading offers a more practical way to get started in the crypto market as you don’t need to know how the market works to make money.

2. Saves time

Social trading saves time and effort because you can (potentially!) make money without having to trade yourself. You can easily combine it with your daily activities or a full-time job. Some experienced traders also participate in social trading to earn passive income while pursuing other activities.

3. Helps traders interact and learn

Social trading makes it easy to associate and interact with other crypto traders, as in the case of trading forums. Traders can discuss their thoughts on trades and then choose the one that seems the best. They can also learn from more successful traders by watching how they trade and perform their analysis.

4. Freedom to choose the best

Most copy trading platforms show past trading performance of various professional traders, so you can choose the one with the trading strategy or result that you are most comfortable with. This way you can predict to some extent what kind of result you can expect. But don’t forget that past successes do not guarantee future results in trading. The fact that a trader has done well in the past does not guarantee that he will have good results in the future.

5. Gives some control

Many social trading systems allow you to have some form of control over your account. You can choose to opt out of trades that you are not sure about. You can also close losing trades to limit your losses. If you lose faith in a trader, there is always the option of leaving him for another.

6. A potential source of income for experienced traders

Experienced traders can earn more than they normally would by offering copy trading services or being signal providers. They could make money by entering into a profit-sharing agreement with their customers or by offering a subscription package that their customers continuously subscribe to.

Below are some disadvantages of getting involved in social crypto trading.

1. Potential loss of deposit

We cannot deny that professional traders can make mistakes or have losing streaks, which lead to losing a large part or even all of their capital.

Inexperienced traders who have found it difficult to achieve consistently good results through trading can create a signaling service to make money. There is no doubt that traders who follow such signals cannot succeed in the long run.

2. It can be misleading

Social trading can be confusing or misleading, especially when suggestions from forums and signal providers do not confirm your analysis. Having suggestions from many people can also confuse traders and in the long run become unproductive.

3. Inability to master trading

As much as you can learn to trade by studying and following successful traders, you may find it difficult to perform your trading analysis yourself due to your over-reliance on professionals. This won’t be a problem if you’re okay with copying other people’s trades, as long as they end up in profit. But if your goal is to master how to trade yourself, you should take the time to learn about the market, build your strategy, and continually improve it.

With the popularity of social trading and its effectiveness for traders, many crypto trading platforms have introduced social trading opportunities for their clients. Some platforms have also been developed specifically for this purpose. This section will review four platforms where you can conduct social crypto trading activities.

1. eToro

eToro is a social trading platform for multi-asset trading. It allows customers to trade currencies, stocks, commodities and other CFDs in addition to cryptocurrencies.

You can invest as little as $200 on the platform and copy up to 100 trades simultaneously. You can also invest up to $200,000 in one trader.

2. Zignally

Zignally started in 2018 and started its copy trading model sharing mode later. The profit sharing model integrates professional traders, who use their trading capital to generate income for their followers. The platform provides investors with strategies, insights and tools to select the best digital asset managers.

3. Shrimpy

Shrimpy started in 2018 as a crypto portfolio management platform where you can easily connect all your exchanges and wallets to manage crypto assets. Not long after, it introduced its social trading service to connect a community of crypto traders.

All you need to do to enjoy the social trading services is to connect to your exchanges, view the leaderboard to find a leader that suits you, and start following. In addition, the service allows the integration of more than 30 exchanges and wallets.

4. CopyMe

CopyMe also allows investors to copy traders automatically and in real time. You can follow one or more experts on the platform without sending out money. There is no profit sharing at CopyMe. You only need to pay the monthly subscription fee set by the expert dealer(s) you follow. The platform supports exchanges such as Binance and BitMEX.

If you haven’t been able to achieve consistent trading success, don’t have the time to trade, or want to diversify your portfolio, consider engaging in social crypto trading. Over time, institutions and individuals with large funds have employed professionals to trade and manage their funds. Now this opportunity is open to everyone through social commerce.

Make sure you are patient enough to choose the right trader and strategy. In all, do not forget that positive results are not always guaranteed in trading.