Making the most out of Forex trading through social trading
Forex trading is getting easier with technology. In the past, one had to spend hours and hours analyzing the markets for him/her to place a trade which in some cases would still end up being a wrong trade. But thanks to the introduction of the social network technology! Traders can now use the same principle of the social networks to increase their Forex trading profits through social trading.
Social trading is when traders get connected through a social trading network and share information about the Forex markets to an extent that traders can even copy trades from their fellow traders. Traders get to form a kind of a community through which they are able to interact about the markets as they trade.
Contrary to the normal social networks where people share picture and messages talking about social stuff, in social trading networks traders share information about the financial markets like the Forex markets.
How social trading works?
A forex social trading network normally consist of the social network service provider, expert traders and copy traders.
Social network service provider is usually the owner of the platform upon which the social trading is taking place and in most cases it is usually a forex brokers since most forex brokers allow social trading.
Expert traders, which are also referred to signal providers, are those experienced traders who mostly want to share their trading experience while also learning several trading tips from other experienced traders so as to help them grow their profits. In most cases, these experienced traders benefit from these social trading networks through gaining information. They register for social trading with the social network providers and are obligated to all their trading activity so that the copy traders can gauge them according to their success in trading.
Copy traders on the other hand are mostly novice traders who are after getting trading signals or copying trades so that they can at least place trades that are profitable.
For most social trading service traders the copy traders register for free although for some brokers, there are specific accounts or platforms for social trading and a trader may be required to deposit a specific initial amount to be allowed to open the account.
When a copy trader registers with the social trading service provider, he/she is able to view the list of the experienced traders who have disclosed their trading history as well as their currently opened trades. It is the work of the copy trader to choose the ‘best’ expert trader from whom they want to copy trades. The process of choosing the trader to copy from is usually very delicate since if you choose wrongly, then the trades that you choose will end up being losses.
Choosing the best trader to copy trades from
When choosing the trader from whom to copy trades from, there are several factors which you should consider. These include:
- Period of trading
You will need to know how long the trader has been operating the current account. If a trader has made a $1000 profits in period of 7 month, he is better off than a trader who has taken 2 years to make the same $1000 profit. Both have made the same amount of profit but for one it has taken him lesser period and if you project it to the long term, then that profit will be far much higher.
However, you should ensure that you look for a trader who has a trading history of more than 6 months. This will give you a more comprehensive view of how the trader trades.
- Account growth
This is normally displayed in form of a graph in most cases and it indicates how the account balance has been growing starting with the initial deposit. It gives an overall performance of the traders account and shows how the trader has managed the account.
Traders should look for traders with higher account growth rates.
- Maximum drawdown
You should also not when and which was the largest trade loss that trader ever made. This will enable range the maximum loss you can make from a trade copied from the trader.
Recovery period after the maximum drawdown
- Average profitability
This is the average profit that the trader has made over the entire period he/she has been trading. The higher the average profitability, the more likely it is that the trades copied will be profitable.
Advantages of social trading
- Novice traders can make profitable trades by copying other experienced traders.
- The beginners/novice traders are not required to gain a lot of Forex trading skills to start trading. They can start very green and still make profits.
- Social trading provides a great platform for traders to share and gain knowledge on forex trading techniques.