New Use Of Social Networks: How To Earn A Living By Copying Other Traders

The following is a guest blog post:

Trading in the financial markets has traditionally been a preserve of the financial nerds and gurus with top notch skills in market analysis and equipped with advanced market forecasting tools. However, thanks to technological advancement, new investment and trading channels are being developed every often that are disrupting the traditional ways of trading and investing. Fintech companies are revolutionizing how individuals are saving, investing and trading on their own money; hence giving more power to the individuals to manage their own wealth more easily and conveniently from basically anywhere in the world.

When online trading started, there were very few players in the sector due to few brokers with advanced computer networks to handle the online transactions at ease. In addition, people were a little bit skeptical about investing through online platforms due to the perceived risk exposure to fraudsters and online crime. However, over time the fears have significantly faded off; while more brokers have joined the online trading community to create advanced platforms where individuals log in at their own convenient time to trade.

In the traditional sense, you had to study the market for yourself to understand how the price of the underlying asset you are trading on would be moving within your trading period. However, following market trends and analyzing the effect of every major economic factor on the price movement for your preferred underlying asset classes when trading; can be both time consuming and tiring for non-finance individuals. To further ease the trading process and democratize it so that every individual is able to trade irrespective of their academic background; the concept of copy trading was introduced into online trading. In copy trading or what is also referred to as social trading, you do not need to follow the market; all you need to do is to identify a successful veteran trader on the platform and mimic their trading patterns.

Several online trading platforms among them ZuluTrade have adopted social trading in order to open online trading to more people regardless of their level of knowledge of financial markets. Other platforms have adopted copy trading in order to boost the number of traders on their platforms; which translates to higher commissions for them. Thorough due diligence is therefore necessary before settling on a credible broker and opening and account with them. Through independent ZuluTrade review by third parties, you will for instance be able to get their ratings and be able to make an informed decision as to whether you would like to open an account with them. The reviews often cover a wide range of issues that are of great importance to the trader such as features of the platform, fees charged, support to new traders among others.

Having selected your preferred online trading broker, you can then delve into the platform and start learning how to trade using the demo account before investing your real money. This is meant to ensure that you do not get swayed by the market and lose your initial capital due to lack of skills and familiarity with the trading platform. After learning on the demo for a few days you then transition to your live account and invest your real money. Most social trading platforms accept a minimum deposit of a few hundred dollars into your online account before you can start trading. For some platforms the minimum can go as low as USD 30.

As a new trader using the live account for the first time, it is advisable that you first monitor the leading traders in the platform for some time in order to chart their trends and success rates. Once you have established the top gainers with high success rates, you then choose one whom you will be following and copying their trading patterns. You can as well choose to mimic two or more traders if you are trading in different asset classes where you have different highly rated veterans. Besides monitoring the traders yourself before deciding who to follow, you can opt to use a strategy that will need less time before you can get started with social trading. This involves following the trader with the highest number of followers copying his trades; since naturally that would be assumed to be the best trader and hence everyone want to be like him.

Social trading does not however mean that you should be in autopilot at all times just copying what the veteran is doing. In some cases the veteran will make a mistake and if you were not keen enough on the market trends, you could end up losing all your invested capital too. To be on a safer side, it is advisable to also be monitoring market trends for yourself on the side even as you copy others; in order to minimize your chances of losing and maximize your chances of winning in every trade.

14 thoughts on “New Use Of Social Networks: How To Earn A Living By Copying Other Traders

    • Hi DN,

      I’m not saying I condone it or even follow any sort of ‘copy trading’ strategies but they do exist. Thank you for commenting.

  1. DivHut – Thanks for posting this. It is definitely an interesting development in the industry.

    I have learned a lot about stock market investing by watching other investors over the years, so maybe this idea is just a natural evolution of that.

    • Hi SS,

      Glad you enjoyed this post. Watching other people invest is not the same as copying. As you know, there are many financial/dividend blogs that exist and I enjoy reading what others are buying but I only purchase stocks I feel comfortable owning and never blindly copy trades. I appreciate your comment.

  2. There is a place for social trading. My concern is that beginning traders will rely too heavily on copying trades and not enough on understanding the fundamental and technical analysis that goes into making a successful trade.

    I used to be interested in trading stocks. I use to dream of sitting at the beach, getting an alert on my laptop, ipad or phone, spending less than 5 minutes making a successful trade and then going back to relaxing on the beach. Now, I dream of sitting at the beach and not have to worry about placing a trade because the stable companies I’ve invested in will be paying me dividends no matter if the stock market goes up or down.

    Interesting article.
    Dividend Portfolio recently posted…Backup Your Blog – New Feature AddedMy Profile

    • Hi DP,

      This is what we are all striving for, “Now, I dream of sitting at the beach and not have to worry about placing a trade because the stable companies I’ve invested in will be paying me dividends no matter if the stock market goes up or down.” Just keep buying solid dividend paying stocks, diversify and don’t copy others. There’s no such thing as a free lunch when it comes to copy trading. Often the prices you get as a copier are never as good as the original purchase. I know many who try and buy any Warren Buffett stock after the fact but fail to realize that his deals on stock purchases are often better than anything us mere mortals can ever get. Thank you for commenting.

    • Hi P2F,

      Judging by the comments it appears many agree with you. As I stated earlier, I don’t I condone it or even follow any sort of ‘copy trading’ strategies but they do exist. It’s usually best to follow your own path and learn from your own successes and failures. Thank you for stopping by and commenting.

    • Hi Jay,

      I couldn’t have said it better myself. I think everyone should follow their own path towards financial freedom via investing. Usually, blindly following others doesn’t end well. As always, I appreciate your thoughts.

    • Hi At,

      Yes, I agree. To blindly follow is ill advised, however, like you, I also receive inspiration and potential investment ideas from our fellow bloggers. Of course, it just serves as a starting point for my own further research rather than simply buying what others are buying. Thank you for commenting.

  3. Just copying other traders or investors can be quite dangerous. Not that you would be constantly picking up bad stocks or trades but because it will make people lazy to learn investing on their own, understand the trade and its metrics behind, etc.
    It may be a good start for new investors to take such trades as inspiration for learning or to start investing or trading. I used this strategy for myself – when I started dividend growth investing as well as options trading.
    I took such trade only when I learned it first and understood it or I had an opportunity to interact with a trader who would be willing to help me out should the trade go bad. So for a learning process in a paper account? Yes, it is doable. To make money mindlessly copying others? Sure way to lose money.

    • Hi Martin,

      Well said. Nothing wrong with watching and learning about trading techniques and strategies. We kind of do it here on our blogs as we share our recent buys/sales, etc. It can be a good way to paper trade as no real loss can be incurred. Just lessons. Blindly following other trades with real money… that’s another story and quite dangerous if you ask me. Thank you for stopping by and commenting.

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