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By Dáire Ferguson, CEO, AvaTrade

Trading financial markets can be a daunting prospect. Success requires both extensive knowledge and experience, and acquiring the necessary skills can take time. 2020 has seen a significant increase in retail trading, with new users clamouring to benefit from the current volatile economic climate. Yet while this presents the opportunity to net handsome profit, even the most experienced traders risk making significant losses.

When it comes to conquering the art of trading, there are numerous areas that must be mastered – from reading charts to understanding trends and analytic reports – while strong market knowledge and up-to-date awareness of the latest economic news is vital to seizing the right opportunities at the right time. Traditionally, hard work and long hours were the only route to success. Yet over recent years, the retail trading industry has received an overhaul, with pioneering fintech companies coming up with creative solutions to make trading accessible to the masses. One such solution is social trading – but what is it, and how does it benefit traders?

Social trading: the basics

Dáire Ferguson

Dáire Ferguson

The rise of social media networks and online communities have opened up channels of communication in all areas of our lives. The trading community has not been an exception, and as more and more people have taken to sharing their strategies online, social trading platforms have emerged – providing a dedicated space to connect with a network solely focused on the business of trading and investment.

These platforms connect traders of all levels and backgrounds, offering users the chance to showcase their expertise, observe one another’s positions and strategies in real-time, and interact and discuss trades and the market. According to Raconteur, one in two people refer to the opinion of experts or peers before making an investment decision, and having easy access to this advice and support through social trading platforms has greatly streamlined this process for many.

For new and less experienced users, these platforms offer the chance to learn directly from more experienced traders who demonstrate exactly how and where they are investing their own money. What’s more, many platforms – including AvaSocial – also leverage copy-trading services that allow users to not only observe lucrative trades, but also copy qualified investors in executing the same strategies so they too have the chance to earn a tidy profit and minimise risk.

While the benefits for more novice traders are obvious, social trading can also be a great platform for more experienced users – extending far beyond simply offering a place to showcase their expertise. Indeed, social trading platforms help to build a community of investors where users can share information and collaborate on different ventures, thereby presenting the opportunity to learn from their peers and, in turn, diversify their trading strategies. Some platforms even offer experts the opportunity to generate revenue from sharing their strategies – meaning users can profit while helping to educate their less experienced counterparts.

Doubling up protection with risk management tools

In addition to the rise in social trading platforms, there has also been an increase in risk management tools available on the market – helping encourage newer traders to be more confident with their investments while giving more experienced users the opportunity to trade more volatile positions without the risking their capital.

In particular, for those looking to trade in the current volatile market – which offers the potential to make a tidy profit, but equally, significant financial losses – these tools provide a vital added layer of protection. And while there are varying degrees of security available, some, such as AvaProtect, go as far as providing total protection against losses for a defined period for a small cost – similar to the premium on an insurance policy.

As technology continues to evolve apace, giving us greater controls and more options when it comes to trading, so does its accessibility. With many brokers now offering their platforms on mobile applications, ease-of-access continues to open up the trading space to new audiences, with everything now available at the touch of a button.

The wide range of options that social trading platforms offer, alongside the increasing number of risk management tools that ensure better protection in turbulent markets, have supported the plethora of new users that have joined the trading community this year – providing the opportunity to profit from volatile markets even as novices and giving users the chance to “learn while you earn”. At a time when people are increasingly seeking openness, security, and convenience in many aspects of their lives, social trading is paving the way to a more open, collaborative experience – benefitting traders from across the spectrum.

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