In the modern digital age, social trading has emerged as a revolutionary tool for traders worldwide. It is particularly useful for those just starting. By bridging the gap between isolated individual trading and a powerful collective knowledge community, social trading platforms are the best way for new traders to get ahead.
With the best social trading brokers, you can get real-time insights into the strategies of seasoned traders. For newbies, this means a chance to learn, adapt and thrive in fast-paced markets. For traders who are more experienced, they get the chance to lead, share and even monetize their knowledge. In this article, we will discuss social trading in detail and explain how social trading is not just a trend, but a valuable tool for informed decision-making in the modern trading landscape. We will also introduce you to the broker we believe is the best copy trading broker active today.
What Is Social Trading?
Social trading is an activity whereby traders observe and follow the trading strategies and behaviors of more experienced traders. Think of it as a type of collective intelligence that is facilitated by online platforms. Here's a deeper look into its key features:
Platform-Based: Most social trading takes place on specialized platforms that allow traders to share their actions, strategies and results.
Follow & Copy: One of the most powerful features of social trading is the "copy trading" tool. We should point out that copy trading relates to the action of a new trader copying an experienced trader’s moves, whereas social trading relates to a broader number of actions that include studying, copying and discussing trades with elite traders. If you want to learn more about copy trading, read our article here.
Transparency: Social trading platforms typically provide detailed performance metrics about traders who wish to share their results. Commonly shared information includes profit percentages, risk levels, preferred assets and trading frequency.
Education & Community: Besides the trading aspect, these platforms also often have communities where traders can meet to share insights.
Broker Integration: Many social trading platforms are either linked to or owned by brokerage firms. This makes it easier for users to seamlessly execute trades without switching among multiple platforms. However, note that websites that offer social trading do not have to be a broker. Here at Arincen, we are one such example.
Risk Management: While copy trading can simplify investment decisions, you should never forget that all trading involves risk. Many platforms offer risk-management tools, allowing users to set limits on their copy trading activities.
Monetization for Top Traders: Successful traders can benefit from social trading by gaining followers. Some platforms will even compensate popular traders based on the number of followers they have or the volume of assets copying their trades.
Pros and Cons of Social Trading
It may be a powerful way to trade, but social trading has its pros and cons.
Educational: Newbie traders can learn from experienced traders at a time when they need direction the most.
Simplified Decision-making: Capital does not come easy for the vast majority of traders. The money they use to trade has often been painstakingly saved with the goal of launching a trading career. The stakes are often high. Rather than analyzing markets independently, beginners can rely on the expertise of those they follow.
Community Engagement: Financial trading can be a solitary pursuit, but social trading allows traders to discuss strategies and market insights with others.
Over-reliance: There's a risk that you might lean too heavily on others without developing your own understanding.
Past Performance: A common mistake is assuming that past performance guarantees future results. It does not. Just because you enjoyed some wins in the past doesn't guarantee any future success.
Costs and Fees: Some platforms may charge fees for copy trading or have higher spreads, which can eat into profits.
How Does Social Trading Work?
Social trading exists at the intersection between traditional trading and social networking. Traders can share their actions, insights, strategies and results in real-time. Here's a step-by-step breakdown of how it generally works:
Sign Up: Just like with any other online platform, the first step is to sign up for an account on a social trading platform or broker that offers social trading services.
Profile Creation: Traders create profiles that display their trading results, strategies and other relevant data. This allows other users to assess their performance over time.
Observing Other Traders: Users can browse through the profiles of professional or more experienced traders to see their trading strategies, risk profiles, preferred instruments and more.
Follow & Copy Trading: One of the best features of social trading is the ability to "copy" another trader's actions.
Follow: You can choose to “follow” certain traders, which means you get updates and alerts about their trading activities.
Copy: This takes “following” a step further. If you opt to “copy” a trader, the system will automatically replicate their trades in your account based on the funds you allocate. So, for example, if the experienced trader you are following buys Tesla stock, then Tesla stock is also purchased in your portfolio.
Interactive Features: Social trading platforms usually offer features like commenting, forums and chats. It’s important to provide a place where traders can discuss market events, share insights, ask questions and even debate strategies.
Risk Management Tools: Recognizing that not every trader's risk appetite or strategy may align with the follower's goals, the best platforms provide good risk-management tools. You can set maximum loss limits, decide on the portion of your capital to allocate to copy trading, or even choose not to copy certain types of trades.
Withdrawing Profits & Funds: Just like with traditional trading platforms, users can withdraw their funds or profits. However, it's important to understand the platform's fee structure, as some might charge for withdrawals or have other associated fees.
Social trading is so powerful because it democratizes the trading experience, providing newcomers with a window into the strategies of those who are more experienced, and potentially helping them navigate the often turbulent waters of financial markets.
Kinds of Social Trading
Best copy trading brokers and platforms for copy trading - Etoro, Zulu trade, MT4
With copy trading, you automatically replicate the trades of another trader you are following. When your chosen trader executes a trade, the same trade is initiated in your account. This is a hands-off approach that is automatic, without your direct intervention.
You usually have control over the amount of capital allocated to copy a specific trader and you can start or stop copy trading at any time.
Best sites for social following - Arincen and Tradingview
This refers to monitoring or "following" a trader's activity without necessarily replicating their trades. It's like following someone on a social media platform. It’s more active than copy trading as you get to decide if you will mimic any trades. You will see updates, strategies, comments, and trades of the trader you're following. You have complete control because it’s up to you to decide which trades to execute.
Best sites for portfolio mirroring: Tipranks
With this strategy, you must copy the entire portfolio structure of another trader, not just individual trades. This means trying to maintain a similar allocation and proportion of assets as seen in the mirrored portfolio. Once you set it up, it’s a passive style of trading. Your portfolio will automatically adjust to match the structure and holdings of the followed portfolio.
How Can I Earn Money Through Copy Trading?
Copy trading offers you a golden opportunity to earn money by using the expertise and trading strategies of elite traders. Here's a step-by-step approach to potentially earning money through copy trading:
Research and Choose a Platform: Start by researching the best copy trading brokers that offer copy trading services. As always, look for regulated platforms with good reputations, transparent fee structures and strong security features.
Sign Up and Fund Your Account: Now that you’ve chosen the platform that is best for you, you can sign up and deposit funds into your trading account.
Choose Traders to Copy: This is normally the fun part. Platforms will typically provide a leaderboard or a list of top traders based on their performance, strategies, risk levels and other metrics. There is a thrill to deciding on whose strategy and performance you like the most. Study their trading history, risk scores, strategies and preferred assets. Look for consistent performers, not just those who might be on a hot streak.
Diversify: This is evergreen advice for any trader. Rather than copying a single trader, consider diversifying by copying multiple traders who employ different strategies or trade different asset classes. This can help spread risk.
Monitor Performance: Regularly review the performance of the traders you're copying.
Stay Educated: While copy trading can be more passive than active trading, it's always a good idea to stay in the loop about markets to understand the driving forces.
Is Social Trading Safe?
Social trading, like all financial activities, carries inherent risks. When thinking about safety, remember two things: security from potential fraud, and trading risks.
Platform Integrity: As with any online platform, there's a risk of cyber-attacks. You may be excited by a broker’s brand promise or they may come highly recommended by a friend, but you still need to perform due diligence. Ensure that the platform you choose uses tough cybersecurity measures, like data encryption and two-factor authentication.
Regulation: This advice will never change. Always go with a platform that is regulated by a reputable financial authority. For example, in the world of FOREX, regulation is very important, which is why lists such as these are so helpful.
Transparency: The platform should offer transparent details about its fee structures, trader performance metrics and any potential conflicts of interest. If you are not sure about something, reach out to the platform’s customer service representatives for clarity.
Market Risks: Markets are volatile. Past performance does not guarantee future results. Even if you're copying an experienced rock-star trader, there's no guarantee of profit!
Risk Management: Not all experienced traders will align with your risk tolerance. Some might employ high-risk strategies that can lead to huge gains but can also set you back through tough losses. Make sure you set appropriate risk management controls, like stop-losses.
Best Social Trading Brokers, Platforms, and Websites
Etoro - Copy Trading Broker
A pioneer in social investing, EToro is a social trading and multi-asset investment company that focuses on providing financial trading services. Founded in 2007, EToro now has more than 25 million users in 140 countries worldwide. This market-leading social trading network allows traders to copy the trades of experienced investors, or receive exclusive perks for sharing their own trading strategies. This platform’s social features and active community make it a good option for people who prefer a more communal trading experience.
Seamless account opening
Powerful social trading with popular traders
Advanced trading features in mobile app
Beginner-friendly presentation of financial data
Only one account base currency
Customer support can be improved
Arincen - Social Trading and services Website
Arincen delivers just what the modern investor needs. The company’s aim is to simplify the world of trading. The powerful Arincen network offers a one-stop digital hub that unites traders and market experts from around the globe. Founded by seasoned professionals in finance and currency markets, Arincen serves as a communal platform for sharing insights, evaluating trading firms, and accessing a comprehensive suite of trading tools and services. Besides FOREX, Arincen offers access to other markets like stocks, cryptocurrencies, commodities, and futures.
Its signals service is second to none. You can benefit just as much if you are a beginner or a professional trader. With signals, you can determine the direction of the markets quickly, and follow top analysts and experts so you can implement their signals and make money. You can also follow signals on Arincen through live charts in real-time. Arincen has the largest signals platform out there for stocks, FOREX, crypto and more.
Vibrant social trading community
Offers access to stocks, FOREX, crypto, Indices and futures markets
Access to a large number of high-performing traders to follow
Excellent signals package
High quality information and news packages
Does not offer brokerage services
ZuluTrade - Social Trading Website
Athens-based ZuluTrade offers a cutting-edge online and mobile platform specializing in social and copy trading within the FOREX market. Available for traders of all levels, ZuluTrade is easy to use and has a user-friendly interface and accessible layout. Over 90,000 traders are available to follow and the firm has received multiple industry awards for its good work. It is regarded as one of the world's largest and best-performing social trading networks.
Easy-to-use platform with reliable connectivity
Fast connection to more than 70 top brokers
Large number of global affiliate brokers
Free demo account
More than 90,000 traders to follow and copy
Algorithm for ranking signal providers could improve
Customer service responses are slow
Tradingview - Services Website
TradingView is a web-based social network for traders, allowing them to interact and share trading ideas as well as analyse and trade directly from TradingView's advanced charting capabilities. Tradingview provides a vast array of tools for technical and fundamental analysis, including customisable charts, indicators, and alerts. This popular charting platform and social network is used by 50M+ traders and investors worldwide to spot opportunities across global markets.
Several different Japanese Charts are available
Vast number of pre-built and community built indicators
Economic calendar directly on the platform
Dividend and earnings calendar shows directly on the stock chart.
Advanced analytical tools
Excellent educational resources
Users on the free plan may not have access to advanced features
Delayed response times from customer service
MT4 - Trading Platform
MetaTrader 4 or MT4 is a trading platform that is geared primarily towards FOREX. Launched in 2005 by tech powerhouse MetaQuotes Software, this platform has become a household name among casual traders and pros alike. Despite its FOREX focus, it also allows the user to trade in other financial instruments, like CFDs, commodities, and cryptocurrencies. Since its release, it has grown to be one of the most popular forex trading platforms in the market, with millions of users worldwide. Traders can access real-time currency prices and eye-catching charts, among other excellent features.
Ease of deployment
Platform doesn’t overload the computer
User-friendly design for beginner investors
Compatible with several operating systems
Advanced charting capabilities
Comprehensive historical data for backtesting isn’t available
Execution speed is not good and is unsuitable for high-frequency trading
What Is the Best Copy Trading Platform?
After conducting thorough research, we would recommend EToro as the best copy trading platform; here’s why:
EToro has carved out a position as the premier social trading and the best copy trading broker. What sets them apart? It's a balanced blend of this broker’s intuitive user interface, coupled with advanced algorithmic capabilities that effortlessly match newbie traders with seasoned professionals.
The broker’s robust security measures ensure utmost transparency and trust. This is crucial in a space where trading decisions hinge on true real-time data and peer insights. Traders who work with EToro copy trading will attest to its commitment to continuous innovation, personalized support, and a vast network of diverse, expert traders. This makes it the unrivalled hub for both social and copy trading.
Does Copy Trading Really Work?
This is a complex question. The first thing to point out in the trading world is that there is no sure thing. Trading is risky, and you can lose money very easily.
Back to the question. Does copy trading work? If by this you mean whether the mechanics of copying another trader's moves in real-time functions correctly, then yes, on reputable platforms, copy trading works.
However, if you're asking whether copy trading guarantees profits, the answer is more nuanced. Yes, you can be successful with copy trading because trades are based on the actions of experienced and motivated traders. These traders are your eyes and ears in the market, and they have invested considerable time and energy honing their skills. For as long as you have selected the right trader or traders to follow, and as long as they are profitable, you can be profitable too. It’s not a definite yes, is it? There is still a lot that can go wrong. Remember these critical considerations:
Past performance does not guarantee future results.
Always diversify. Relying on a single trader or asset class can be risky.
Not every trader's risk profile is best for you. Find someone who has a similar tolerance as you.
Always research and choose traders based on more than profits. Look for trading strategy, the length of their career and other relevant metrics.
Watch out for additional costs and slightly wider spreads that can impact your net returns.
Try to educate yourself. Relying solely on copy trading blunts your ability to develop a trading strategy of your own.
Use risk management tools. Be it by setting a maximum loss limit or deciding the portion of your capital to allocate to copy trading, always cover yourself.
Understand the difference between popularity and skill as it relates to traders you follow. Is a trader more skilled or simply better at promoting themselves?
Copy trading can work, but like all investment strategies, it's not foolproof or guaranteed to be profitable. You must approach it with a comprehensive understanding and manage risks effectively. Don’t be totally hands-off. Continually assess and adjust your copy trading portfolio.
Is Copy Trading Risky?
Yes, copy trading carries inherent risks, as does any form of investment in the financial markets. Here are some of the risks associated with copy trading:
Market Risk: The financial markets are volatile by nature. Prices of assets can fluctuate rapidly based on a myriad of factors, from geopolitical events to economic data releases.
Over-reliance on Another Trader: Always diversify. This includes diversifying from over-relying on one trader.
Platform and Technical Risks: Technical glitches, platform outages, or delays can affect the execution of trades. There might be times when the trades of the trader you copy don't get replicated in your account due to technical issues.
Cost and Fee Implications: Some platforms may charge higher fees for copy trading services or incorporate wider spreads, which can eat into potential profits. The best social trading brokers are normally transparent about fees.
Misleading Information: Remember, experienced traders are invested in getting you to follow them. This is because on most platform they get rewarded by the number of followers they have and how profitable their followers are. Because of this, some experienced traders have been known to misrepresent their performance, strategy, or risk levels.
Emotional Decisions: We all know the acronym FOMO - Fear of missing out. Seeing real-time trades can provoke strong emotional reactions, leading you to make impulsive decisions, such as stopping a copying relationship after a single losing trade, even if the long-term strategy is sound.
Lack of Control: With copy trading, specific investment decisions are outsourced to the copied trader. While this is great when you start out and have limited trading knowledge, it also means giving up a level of control over individual trade decisions.
Tips for Getting Started
If you're considering diving into the world of copy trading, following these tips can help you get started on the right foot:
Look for platforms that are regulated by reputable financial authorities. Check for transparent fee structures and user reviews.
Understand the Costs:
Be aware of any fees associated with copy trading, which might include spreads, overnight fees and subscription costs. You must determine if the costs are justifiable for the service provided.
Start with a Demo Account:
Many platforms offer demo accounts that allow you to practice copy trading with virtual funds. This can give you a feel for the platform and the process without risking real money.
We’ve covered this at length in this article because it is so crucial. Don't just look at profits; assess traders based on their risk scores, trading strategies, trading history and preferred assets.
Avoid traders with extremely aggressive strategies unless you understand and accept the associated risks.
Once you are ready to launch, consider starting with a smaller amount of capital until you're more comfortable with the platform and process.
Don't put all your eggs in one basket. Consider copying several traders with different strategies or asset focuses to spread your risk.
Set Clear Risk Parameters:
Before you get started, have some idea of how much of your portfolio you want to allocate to copy trading. Don’t forget to make the most of risk management tools offered by the best copy trading brokers.
Regularly review your copy trading portfolio. The best social trading brokers allow you to track your choices easily. Don't think twice about unfollowing a trader if their strategy no longer aligns with your goals or if they consistently underperform.
Set Realistic Expectations:
Copy trading is not a guaranteed way to make money. Understand that losses are a part of trading, and even the best traders can have off periods.
What to Look for in a Social Trading Platform
When considering a social trading platform, there are several factors to consider to ensure a safe and productive trading experience. Here's a detailed breakdown of what to seek:
Liquidity: Popular assets should have enough trading volume to allow for easy entry and exit without significant price fluctuations.
Access: Check if the platform offers access to global markets or is limited to specific regions.
Reputation and Regulation
Regulatory Oversight: Ensure the platform is regulated by a reputable financial authority in its jurisdiction. An example of a top-tier regulator is the Financial Conduct Authority (FCA) in the UK. If you want to read more about how the FCA protects traders, read our article here. Other examples of tier-one regulators include the Swiss Financial Market Supervisory Authority (FINMA), and the Australian Securities & Investments Commission (ASIC). This list is not exhaustive.
Regulatory oversight provides a level of protection and comfort that the platform complies with industry standards and best practices. Remember always that you don’t have to rely on these regulators alone. Depending on which part of the world you live in, your local broker may not have a footprint in countries where these tier-one regulators operate. Your next best bet is to make sure they are regulated locally.
User Reviews: This is a treasure trove of feedback. Look up reviews on independent forums, websites or financial communities. Positive feedback from real users can often be the best indication of platform reliability.
History: A platform with a long-standing history in the industry can often be a safer bet than a new entrant. Check for any past security breaches or issues in the press.
This is linked to our point above about regulation. Different regulators have different guiding policies in leverage. Consider this, with brokers based in Europe operating under the rules of the European Securities and Markets Authority (ESMA), the leverage for Contracts for Difference (CFDs) is heavily regulated. Because of this, you can only get leverage of:
30:1 for major currency pairs
20:1 for non-major currency pairs, gold and major equity indices
10:1 for commodities other than gold and non-major equity indices
5:1 for individual equities and any underlying not otherwise mentioned
2:1 for cryptocurrencies
Retail Trading Accounts: These generally offer more protection than professional trading accounts including a negative balance protection policy and lower leverage (maximum 30:1 in ESMA-controlled countries).
Professional Trading Accounts: These generally offer high leverage of up to 200:1 even in ESMA-controlled countries. This is because it is understood that professionals have the skills and experience to not fall victim to irresponsible trading.
On the other hand, let’s consider that in some jurisdictions, you can get leverage as high as 500:1. In fact, if your broker is registered in the South American country of Belize, you can get leverage as high as an eye-popping 1000:1. It should not come as a surprise to learn that brokers in these jurisdictions are not considered to be part of a high regulatory tier.
This is a double-edged sword because you can make a lot of money, but you can just as easily become financially ruined!
Research Tools and Education
Analytics Tools: The platform should offer robust analytical tools and many methods to evaluate trader performance. This includes historical returns, risk metrics, trading strategies and more.
Educational Content: For beginners, educational resources are crucial. Look out for platforms offering webinars, tutorials, articles and even demo accounts to familiarize users with trading concepts.
Community Engagement: A vibrant community can provide peer reviews, insights and discussions, which can be invaluable for both novices and experienced traders.
Real-time Data: This is the lifeblood of social trading. Make sure your broker gives you access to live market data, news updates, and economic calendars that can help in making informed decisions.
Fee Structure and Costs
Trading fees can sometimes be difficult to keep track of. Be sure to check how these fees compare with industry standards:
Spreads: There are two main kinds of spread, one is fixed and the other is variable. Generally, the spread refers to the difference or gap between two prices, such as the bid/ask rate in a currency exchange rate. An example of a good spread is 1.4 pips for the EUR/USD (the narrower the better, this means that a spread of 1.4 pips is better than a spread of 2 pips). This article explains more about this important concept.
Commission: This is nothing more than the service charge that brokers require for carrying out transactions on behalf of their clients.
Rollover fees: When you leave a trade open overnight, the broker normally charges a rollover fee for the facility of holding your trade open for that period of time. This is because they assume the risk of the market changing adversely.
Withdrawal and Deposit Fees: Some platforms might charge fees for depositing or withdrawing funds. Pay attention to this. It's important to be aware of these and any associated limits or conditions.
Subscription or Inactivity Fees: Certain platforms have monthly charges or fees for inactive accounts. Ensure you're aware of these potential costs.
Performance Fees: On some social trading platforms, a portion of the profit might be taken as a performance fee, especially if you're copying a trader. Make sure you factor this into your profitability calculations.
Social trading can be both fun and profitable. That said, it can also lose you money, which is distinctly not enjoyable. Navigating the world of the best copy trading brokers requires a mix of awareness, prudence and the right brokerage partnership.
While the advantages of the best social trading brokers are compelling, it's equally important to stay alert to the associated risks and to prioritize diligent risk management. As you embark on your social trading journey, remember to make the most of the tips and criteria outlined in this guide to select the best copy trading brokers. With the right knowledge, a discerning approach and a steadfast commitment to learning, you can make the most of your social trading journey.
What is copy trading?
Copy trading is a form of automated trading where individual investors can automatically replicate the trades made by experienced traders in real-time. By selecting a trader to "copy," every trade they execute is proportionally executed in the copier's account.
How does copy trading differ from traditional trading?
In traditional trading, investors make their own decisions about buying or selling assets. In copy trading, these decisions are made by the trader being copied, allowing less-experienced investors to leverage the knowledge and experience of professionals.
Can I lose money in copy trading?
Yes, all forms of trading, including copy trading, involve risk. The performance of a copied trader in the past does not guarantee future results. It's essential to only invest money that you can afford to lose and to diversify your investments.
How do I choose the right trader to copy?
Look at their trading history, strategies, risk score and reviews from other copiers. Consider diversifying by copying multiple traders with different strategies and risk profiles. It's also beneficial to review their trading decisions periodically and make adjustments as needed.
Are there fees associated with copy trading?
Yes, most platforms have a fee structure which can include spreads, performance fees, and other costs. It's crucial to understand the fee structure of the platform you're using and how it might impact your returns.
Do I have control over my investment in copy trading?
While the trading decisions are made by the copied trader, you still maintain control over your account. You can start or stop copying a trader, set risk limits, or manually adjust trades at any time.
Is my money safe in copy trading?
The safety of your money depends on the reliability and regulation of the copy trading platform you choose. It's vital to select platforms regulated by reputable financial authorities and to understand the protection measures they have in place, such as segregated accounts.
Adrian Ashley is a seasoned business and finance writer. With a corporate career spanning over 20years, he has developed deep experience in such diverse areas as investing, business, finance,technology and macroeconomics. He is passionate about captu...