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What Is Social Trading and How it Works

by rich • Nov 29, 2022 • 28
edited by rich on May 25, 2024

Social trading, or social investing, has grown in popularity over the past few years as trading has never been easier or cheaper with commission-free brokers. There have been attempts at creating social trading apps and platforms, but until now it hasn't been done right. In this article, we'll break down what social trading is, how it works, and how to get started.

 

What is social trading?

Social trading is the art of investors publicly sharing their analysis or trade positions, where other investors and traders can benefit by using their analysis or copying their trades. Social investing allows traders to see what trade positions their peers are investing in. Social traders can build up their presence and gain recognition based on their trading performance, and new traders can take advantage of this by being able to follow top-ranked traders and copy their positions. 

This style of investing has grown a lot in popularity over the past couple years due to an influx of new retail traders brought together by a perfect storm of events. With the 2020 stock market crash lowering the value of stocks and the growing COVID-19 pandemic putting countries on lockdown, new investors were looking for a way to supplement their income to compensate for lost work hours or slowing and stagnant businesses. It was a perfect storm of events that created the rise of the wallstreetbets subreddit and meme stocks like $GME.

What is a social trading platform?

Mostly common on Twitter, Stocktwits, or brokerages like Webull with a comments section, a social trading platform is where all of this can take place and track the performance of traders with in-depth statistics such as win rate and average gain. NVSTly, a Trade Hub LLC product, is one of the top and most popular social trading apps available, and what makes it unique is that it doesn't limit users to using a specific broker, such as eToro does. It supports cross-brokerage integration, allowing traders with commonly used brokerages to benefit from the platform, making it compatible for traders using a multitude of various brokers.

How does social trading work?

Social trading works by creating an environment where beginners and expert traders alike can collaborate and benefit from their peers. NVSTly allows its users to submit trades that can be shared globally or just with their followers, while tracking every position and the performance of a trader based on their trades. Traders have the option to submit trades manually or utilize the brokerage integration feature to automate the sharing and tracking of their trades.

Traders can follow their favorite investor or top-tier trader and opt-in to copy or mirror their trades. "Copy trading" is the term used for when a trader following another creates the same trade order for the underlying asset. With cross-broker integration, NVSTly provides the ability for traders to copy trades from their peers easier than ever before with automated order creation.

Top traders are incentivized to provide their trades to be copied by being rewarded when someone copies their trade. It also adds a competitive aspect by ranking traders on leaderboards, a gamification feature. They also showcase their results with public performance stats of their trading and build a reputation throughout the platform's community.


Is social trading profitable?

Social trading can be profitable by following successful and top ranked traders. When they profit from a winning trade that you're following, then so do you. Social investing is not a guaranteed way to make profits, even experts take on losses. Finding the best traders and copy trading them can seem simple, but there are some factors to consider.

  1. Check the types of positions they are frequently in. Is short selling responsible for the majority of their profits, and you don't have a margin account? Or are they trading multi-leg options when you're not even level 2?
  2. Always practice risk management, don't rely on who you're following to minimize losses. They might be able to afford one 100% loss.
  3. Check their trading style—are they day or swing trading or flagging trades as lotto or YOLO, and does that meet your style?
  4. Recognize that you won't get rich quickly or overnight.


How to start social trading

It doesn't take an expert investor to become a social trader; anyone can get started. Simply sign up for and create a NVSTly account, then choose whether to manually submit your trades using the New Trade button or authorize and opt-in for automated trade sharing and tracking. Collaborate with other investors by sharing analysis and trading positions, find mentorship from an experienced trader within the community, or just follow and copy top traders.

 


FAQs


What is social investing?

Social trading is a form of investing within a community environment where traders can collaborate or copy trade from others.

What is a social trading network?

A social trading app is the platform on which social investing occurs and makes it available to its users.

Is social trading a good idea?

Social trading can be a good idea for investors of any experience level who recognize that there are various factors to be considered.

Who is social trading for?

Investors who frequently share their trade ideas, analysis, or trade positions and mainly publish content regarding the stock market. Newcomers looking for what stocks are being traded by their peers or who want to mirror trade with top-ranked traders.

What is the best social trading platform?

NVSTly is the most popular upcoming social trading app for investors of all experience levels. Take the social aspect of Twitter, combined with the trade history and performance stats of any broker, a ranking structure, along with a reputation system where the community decides who the most recognized or favored traders are, and that's the uniqueness of NVSTly, built by Trade Hub.

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