Crypto social trading is a new model in crypto trading that allows unskilled investors to make a consistent and profitable investment. With flexibility and control, the social trading model has emerged as a promising successor to traditional investment strategies.
Additionally, social trading removes the psychological fear of the market’s volatility by signal providing services and copy trading mechanisms that allow novice traders to leverage the experience of master investors.
This article explores social trading in detail and why it is different from copy trading crypto assets.
Fundamental concepts of cryptocurrency social trading
Social trading of cryptocurrency is a model where traders can learn from experts inside a community by copying their trading strategies and adjusting their risk management measures by subscribing to signal-providing services.
Crypto social trading vs. crypto copy trading
Social trading and copy trading are terms often used interchangeably on the internet. However, experienced crypto traders know that these concepts are somewhat different. To eliminate the confusion, let’s see how copy trading is related to social trading and how it is different.
In simple terms, copy trading is a subset of the larger social trading model. Social trading enables a sense of community on a subscription basis, allowing individuals to get trade signals on their devices. Copy Trading, however, uses these social signals to emulate the trading signal of an expert trader after receiving a notification. Again, social trading is an overall mindset that allows one to learn from others, whereas copy trading simply works as a component of the entire process.
Advantages of social trading
- Profit without much knowledge: Even if you don’t have substantial knowledge about financial markets, social trading can yield a higher ROI. Additionally, automation in social trading platforms takes care of the market conditions and sentiments, which significantly boosts a trader’s confidence.
- Learning experience: Social trading is a potent medium for individuals to learn about trading without enduring considerable financial loss. Here you can imitate the techniques of expert traders and learn to manage risks by yourself. As a result, you can evolve as a more skilled investor and gain valuable experience by merely analyzing other traders’ trade history.
- Effective resource management by copy trading: The social trading approach saves time & effort by showing you the risks. Unlike traditional crypto trading, you don’t have to engage all your time in managing trades. All you have to do here is leverage the risk profile feature to take advantage of existing trends.
- Transparency with social signaling: Unlike traditional financial markets, crypto provides you with tools like signaling services and copy trading. These help you attain in-depth information about each trade.
- Diversification: With crypto social trading, diversifying your investment portfolio is very straightforward. Merely selecting multiple signal providers and adjusting risk parameters to suit your requirements can help you earn a sizable profit from a range of financial instruments.
Drawbacks of social trading
- Limited Control: Social trading limits your decision-making ability over your trading endeavors, making you highly dependent on the experience of other traders. Therefore, you are prone to losing capital unless a risk profile is in place for every expert trader you follow.
- Hefty budget: Social trading in crypto assets requires lofty funds to open an account and invest. Depending on the platform, the value may be higher than what you expect to invest initially.
- Complexity: Every social trading platform has a unique set of rules, control mechanisms, and fee structures, which adds to the nuances for the traders. Adjusting to the environment can take some time before you can go full-throttle with a sizable amount of capital.
- Performance manipulation: Lack of data on drawdowns results in a false sense of security where the platform can manipulate the performance charts to serve an expert trader. Thus, relying solely on the performance charts can put your trading account at the risk of reduction in capital before perceived recovery.
Final thoughts – should you try social trading?
The crypto social trading model is very similar to traditional financial trading systems, which have earned millions in profits to hedge fund investors. With the advent of crypto and the evolution of fintech, everyone can try their skills. Furthermore, the social signaling by crypto communities can effectively drive individuals to open trades at ideal moments, which makes the whole social aspect lucrative.
Additionally, the transparency and control one has in the crypto ecosystem allows the traders to practice complete control over their investment portfolio.