Social trading is an innovative practice where you “piggyback” on the trades of experts to make consistent profits. Why? Because it takes discipline, consistency, great judgement, and immense subject knowledge to do well in the crypto market. However, these qualities take years to hone, and most traders never get to this point. So, what better way than to just follow what the best investors are already doing?
It's a great practice for beginners
Most beginners tend to lose money in the crypto markets. This is because they’re jumping into the market with a half-baked investment strategy, or they are entirely dependent on luck.
With the volatility of the crypto market, sometimes even blind trades could make you money, but that’s not at all a viable long-term strategy. Crypto social platforms allow you to follow expert traders, read about their plans and even invest money into their capital pools.
It does come with certain risks, but the long-term volatility is significantly reduced with an expert at the helm of the decision-making process. Additionally, you get to learn from their trades, drastically shortening your learning curve.
How does it work?
It’s simple; countless social trading platforms have cropped up in recent years. Some popular exchanges have also started offering the social trading feature.
These platforms have several experts onboard whose investment and trading strategies can be accessed and copied. A few platforms will also provide you with in-depth trading history and performance charts of their experts.
All you have to do is create an account on one of these platforms and select an expert you wish to follow and copy. Some platforms offer this service for free, while others charge a subscription fee.
This fee could be a flat charge, like USD 0.99 on every copied trade and a fixed percentage on profitable trades above a certain amount. Other platforms employ a subscription/plan-based model with a monthly/yearly charge.
What’s in It for the Experts?
Social trading or copy-trading would have seemed unethical just a few decades ago. Imagine being great at what you do, and someone else doing equally great without putting in the work.
However, on popular crypto social trading platforms, experts get a pre-decided percentage of the investor profits when they make money on copied trades. This incentivizes experts to do even better and get popular on these platforms to enlarge their capital pool even further.
Things You Need to Remember
Here are a few things you should remember before you start your crypto-social trading journey -
a) Verify the authenticity of the chosen platform
Ensure the authenticity of the platform by reviewing their website thoroughly and by reading and watching reviews online about the platform. Check on the number of downloads, visitors, and expert traders.
b) Research before you start following an expert
It would help if you narrowed down on the experts to follow before you start investing your money. Look at how long they have been trading, their core trading philosophies, their track record in the past and so on. Start following and copying their trades only once you’re entirely sure of their expertise.
c) Start small to test the waters, diversify
There is always a certain risk that comes when you’re trading. The same applies even to the experts. When you’re starting, be sure not to put all your money on one trader but to diversify between different types of traders with different risk appetites. This way, you’re neither missing out on the gains nor are you risking everything on one trader.
Conclusion
Crypto social trading is an exciting development that is going to bring more capital and traders into the markets in the coming years. The platforms are getting smarter by the day and giving more insight into the trading abilities of expert traders. This is an opportunity for new traders to learn fast and vastly reduce their learning curve.
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First Published: Jul 27, 2022 10:30 PM IST
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