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Updated by Albert Fang
Trading is a very complex topic. Even though most investors are aware of the fact that investing in volatile exchange market values can lead to financial loss, it is not advisable to trade by trial and error. Instead, investors should find reliable approaches to reduce the risk of loss.
While some plan to do so by learning trading strategies and scattering their funds on multiple assets in order to compensate possible losses, others use a completely different approach. What´is prohibited in school is a modern approach to trading: copying what others do. Social trading is the keyword. This explanation tells you everything you need to know about how social trading works and where to do it.
Many retail investors would like to benefit from more lucrative assets. But lucrativeness almost always goes hand in hand with a higher risk. On the exchange market, the lucrativeness of assets derives from their fluctuation – the more volatile an asset, the higher the potential profit. But it goes vice versa: If the potential profit is higher, then so is the risk. Traditional funds or ETFs have been a safe choice for those, who wanted to slowly but steadily enlarge their funds. But as soon as you thrive for higher profits, there’s basically no way around direct investments in specific assets.
Successful trading needs a lot of preparation and a strong money mindset. If gut feelings collide with strategies, the outcome can be chaotic. That being said, it becomes obvious that active trading is not for everyone. But social trading gives risk-shy investors a great opportunity: They can invest in volatile assets like stocks, cryptocurrencies, foreign currencies or commodities without having to make their own decisions.
Social trading means that you copy the portfolio of a professional and highly experienced trader. Of course, you don’t have to copy it one to one. That would be utopic seeing that many experienced traders invest big amounts of money. But you can copy their portfolio true to scale. If the trader you are following scatters his funds in a 40%-30%-15%-15% proportion, you basically do the same in proportion to your funds.
Even though online trading is extremely hard, you now have the chance to benefit from the expertise and calculation of an experienced trader. Those traders usually work with elaborate trading strategies and have a good feel for price development. Of course, that´s not a guarantee for a lossless trading journey, but chances of succeeding are a lot higher if you follow professional traders in their footsteps. After all, the trader, whose portfolio you are copying, is thriving for earnings as well.
Social trading is available for all kinds of assets and financial instruments such as derivatives. That means you are not bound by a certain exchange market, which allows for a better diversification. While profiting from experienced trader expertise you also get to learn about trading strategies: By doing what your trading role model does, you get a great insight in how he makes his decisions. That can be very helpful for your entire trading journey.
The process of social trading is fully automated. That means that you don´t just reduce your risk of loss, but that you also get to save a lot of time in comparison to making own decision one trade at a time. As the chances for high profits are good, you don’t have to worry about stepping in with a small budget – you should be able to get the most out of it.
There’s basically only one thing to criticize about social trading: If you´re not disciplined, you might just rest on your trader´s laurels instead of working on your skills. Social trading can be a safe haven for beginners, but new traders should always thrive for gathering their own experience and knowledge. Make sure to work on that, too.
Reviewed and edited by Albert Fang.
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Article Title: Social Trading – a New Approach to Trading
https://fangwallet.com/2021/11/06/social-trading-a-new-approach-to-trading/The FangWallet Promise
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