Advise on social trading through Forex brokers
by Dragan Lukic
You don’t have to search far to find a list of Forex brokers that offer social trading features. For those of you that don’t know, social trading allows us to see what other traders are doing and how they are doing it. In the same way that we see what our ‘friends’ or followers’ are doing on standard social media websites, we can gain an insight into other traders’ strategies if we use social trading features. That is, we can use their expertise and copy exactly the same trades on our own account.
On one hand this sounds great – with virtually no work involved other than picking the trader with the best results from a list, we can sit back and enjoy profits being added into our trading account. On the other hand, does this represent huge risks? Think about it; if we piggyback onto another trader’s account, we are totally reliant on him/her and his/her trading strategies. If we investigate their strategies and create an understanding in the execution, then perhaps this is a good deal. However, if we simply go into this blind and without any research at all, we are leaving ourselves open to emotional, strategic and unnecessary mistakes that could be made by the trader, through no fault of our own.
As this is a relatively new feature that Forex brokers offer, it is very hard to pass judgement without solid evidence but we must think about this style of trading carefully because it is NOT trading. It is copying. We are simply not responsible for making important trading decisions in this scenario. Instead, we leave this work to someone we have never met and whose results we see on a chart.
Forex brokers do make it easy for us to feel confident if we chose to take part in this social trading style. Information is very accessible to us such as the ability to view thousands of traders’ accounts in terms of success rate. There is other information available but realistically, this is all that matters.
As with anything that seems too good to be true, we must always keep our wits about us. If you chose to connect your account to another trader’s account, ensure that all the results that you have seen for the trader are taken from their live account. There
should never be taken from their demo account or be combined with a demo account. It is only this way that you are able to be confident your account is in good hands.
You may find that traders using live accounts do not take too much risk and that they analyze the market a lot better. A combination of those two factors alone could result in minimum loss and maximum profits.
When using live accounts traders who you are copying from are there to make a profit too. They will certainly not over-leverage their positions or take unnecessary risks that could put the investment capital in jeopardy.
Whilst social trading is an automated feature that allows you to trade without even turning your computer on, all traders should add a degree of manual diligence to this trading style. By keeping a watchful eye over how your money is used the end result will always be decided by you i.e. if you wish to continue or scrap this style of trading.
Dragan Lukic is a professional trader with years of experience with Forex brokers. His advice is to research and ask questions no matter which broker you find.
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