In recent years, cryptocurrencies have amassed widespread acceptance and adoption after proving a highly profitable asset class. As a matter of fact, we’re seeing increased interest from not only individual investors but institutions, corporates, and even whole countries. However, these digital assets are highly volatile, which makes their trade equally risky. To profit from this venture requires quite a bit of knowledge and expertise, which could take a while to master. Luckily, there is an easier way for beginners to gain proficiency in the crypto trade without having to rely on trial and error. Enter social trading.
Social trading: How it works
Social trading involves the use of a platform that resembles a social media site, except it is populated by traders. Before it came along, all traders had to rely on research and analysis to identify the assets worth investing in. Nowadays, even if you have no experience trading crypto, you can utilize these platforms to learn from other seasoned traders. These platforms allow you to copy the trades of these experts, which increases your chances of turning a profit. This way, even as you learn, you can grow your account in the process.
There are three trade types that one can execute on a social trading platform. First, you could place a single trade. This simply means that you have done the research and analysis yourself and independently picked the trade. Secondly, you could place a copy trade. This means that you have replicated the trade of another trader on the platform. Finally, you could place a mirror trade. This means you have linked your account to that of an experienced trader, such that you replicate all their trading activities.
Benefits of social trading
- Enables you to copy trades of consistent winners
Typically, most beginner crypto traders end up making losses from their first few trades. This could be dissuading or could lead to irrecoverable losses. When such traders opt for social trading, they can identify a seasoned trader with a good track record of winning trades. They can then benefit from implementing profitable strategies, which they would otherwise have no expertise to formulate. Despite their lack of experience, they can make consistent profits by copying such traders.
- Enables one to benefit from more trade setups
The crypto market, unlike most traditional markets, never sleeps. It runs 24 hours a day, 7 days a week. This means that it is impossible for any one trader to keep an active eye on the market throughout, which means some trade opportunities will be missed. By mirroring the trades of other traders, you can execute trades even when you’re not actively analyzing the price charts. Assuming these trades are successful, this translates to more profits in the long run.
- Helps one learn from others’ strategies
The great thing about social trading is that it is transparent. Everyone can see the copied trader’s track record, strategy, and win rate. As a beginner, once you’re satisfied with a certain trader’s results, you can choose to implement their strategy as is or tweak it to suit your personal needs. What’s more, you can interact with the trader to gain advice on how to utilize and customize their strategy best.
- Allows one to interact with other traders
Trading can get lonely at times, especially when you’re making losses. As a beginner, you will often have questions and need clarification on any number of issues you are likely to face. On a social trading platform, you can find this guidance from experienced traders. You can also interact with other like-minded traders and discuss similar issues you have faced or are likely to encounter.
Social trading as a catalyst to increased crypto adoption
With the various news stories of people making fortunes practically overnight from crypto, there is no doubt that plenty of people are interested in crypto investing. However, they may lack the necessary knowledge or even the time to analyze the markets and make informed trades. Social trading solves this by allowing even the most inexperienced to make profits from this risky market.
What’s more, social trading helps reduce the steep learning curve for beginners. By following the strategies of seasoned experts, they learn on the go and gain valuable practical insights. They also get to learn about the best tokens to invest in, the various market trends, tactics, and more.
Additionally, by allowing interaction on social trading platforms, trading becomes much more fun and immersive experience. One can interact with like-minded traders worldwide, which can help foster a sense of community. In this way, social trading helps onboard novice traders easily into crypto investing and saves them the time and effort otherwise needed to expertly navigate the markets.
Drawbacks of social trading
For all its bells and whistles, social trading can have detrimental downsides as well. For one, it could lead a trader to be overly confident in the skills of the trader they copy, such that they fail to do their due diligence. No matter how experienced a trader is, they can always make mistakes or run into a losing streak. Following traders blindly could lead you to irrecoverable losses.
Traders who use automated copy trading tools may get negligent and fail to keep a watchful eye on their positions. This could prove detrimental in the event of a black swan event or fundamental news that adversely affects a cryptocurrency’s price.
In a nutshell
Cryptocurrency trading has time and time again proven to be an especially profitable venture. However, it is characterized by extreme risk levels, which could be discouraging to new investors. Rather than face the steep learning curve and the risk of trial-and-error investing, such investors could benefit from social trading. This way, they can make profits even as they learn.