With the emergence and powerful influence of social media, new investors and traders often look to those who boast about their win streaks and share charts that demonstrate accurate prediction after accurate prediction. Social trading has exploded due to the user base of top platforms like Twitter, Reddit, Facebook, Telegram, and more becoming interested in cryptocurrencies like Bitcoin, Ethereum, and other altcoins. At the same time, as this category grows, copy trading has also become popular which also involves being a follower within a community.
These two types of trading strategies are extremely different, and this guide is designed to clear up any confusion between the two and explain the key differences of each. Both have their unique advantages and pitfalls, and we’ll help you understand which of them is more successful and why.
The way how social trading works can best be explained in a social media setting. Well known investors or traders with large followings on Twitter, for example, share their trading strategies publicly. Followers of these well known accounts carefully consider the trading information and signals shared and the price charts of the assets they’re interested in. Social traders utilize this information to make a decision based on the intel. These social traders then attempt to mirror the moves recommended by the influencer or chart they shared.
Social trading rarely involves just one influencer, and less experienced investors and traders often build a large social trading network of similar accounts. Because social trading features prominent names, it has become a popular choice among cryptocurrency enthusiasts.
Both social trading and copy trading involve following the trades of other people with more experience, however, they are extremely different in practice. Rather than relying on the integrity of a social network, copy trading includes access to a trader market profile filled with financial data pertaining to risk, success, margin allocation, and much more.
Using fully transparent metrics related to profits and loss, copy trading offers an experience without worrying if the influencer you are following has your best interest in mind. And rather than being stuck still having to manage the positions yourself, when you copy trade, the software keeps track of the following and copies the trades of a more successful strategy manager.
Unfortunately, there’s no social trading platform today, so social trading happens across various social media platforms and whatever the trading platform of choice might be. Social traders scour social networks for traders with large followings or lots of interesting content they share. It is up to the social trader to essentially guess if the person they are choosing to follow has integrity and truly wants the best for their followers.
Followers then make an investment based on what the influencers they follow suggests. However, social trading stocks, crypto, commodities, and more carry risks, and social trading requires the follower to develop a risk management strategy all on their own, and must shoulder the responsibilities of managing positions and properly setting stop loss orders.
With copy trading, there is the benefit of having a social trading platform-like experience with a fully transparent global leaderboard that ranks each strategy manager by profit. Deeper metrics on margin accolcation, risk, success, win to loss ratio, and much more are available in just a click, so followers get a much clearer idea of who they are following.
Copy trading isn’t without some responsibility, however. Followers must make sure those they follow continue to bring profits, and aren’t on a sudden losing streak. Copy trading lets traders diversify across many different strategies, as a risk management strategy.
There’s also an official Telegram channel for Covesting copy traders for an online investor to learn more about the method each strategy manager chooses to utilize, if the follower prefers to have a more personal connection with whomever they follow.
With social trading, newcomers get to learn a lot about fundamental and technical analysis by following accounts that share a lot of information about their positions and trading strategies.
Education can be expensive, so learning these skills for free from someone else with more experience can be a valuable way to grow your own skill set.
With copy trading, there’s a lot less worrying and managing positions on your own. Since copy trading utilizes innovative fintech software to connect followers with strategy managers, followers simply need to click who they want to follow and sit back and profit.
Followers will need to actively watch success and risk metrics to ensure the most success, but so long as a top strategy is chosen, becoming profitable takes significantly less effort and skill than social trading, which still puts most of the responsibility on the follower.
With social trading, it takes great effort to properly curate a social network of influencers worth following, and even more challenging to know which ones are trustworthy. There have been several cases of analysts online photoshopping their PnLs to make it appear as if they are more successful than they are, to attract more followers.
They instead take advantage of their audience, peddling referral links, deleting incorrect calls, and lure these people into paid groups where they share so-called premium signals. What’s worse, is that even though these signals might cost a fortune to access, there’s no telling if they’ll make you a fortune back. And it still means that you are in charge of executing the plan and handling all risk management.
Copy trading requires some patience and relinquishment of control. It requires that a follower have faith that the strategy manager who they are following will produce positive and profitable results. Having transparent success and risk metrics through the Covesting leaderboard system helps, but it still can be uncomfortable at first to try.
The biggest difference between social trading and copy trading, is that with copy trading, another trader actually does the work for the follower. Using the Covesting copy reading module, followers put capital on the line to copy the trades of strategy managers ranked highly in the leaderboards. These strategy managers trade with that capital, plus their own, and any successful trades booked bring profits to both the strategy manager and the follower.
With social trading, the person still does all the work themselves, and instead rely on the signals of others who they hope they can trust. Because strategy managers actually have incentive they are encouraged to do well for their followers, and their efforts also impact their own bottom line. With social trading, influencers make money by pushing products, links, sponsored content, or could possibly be countertrading their audience or using them as part of a pump and dump scheme.
Here is a visual breakdown of the various benefits and disadvantages both social trading and copy trading have to offer. Use the below chart to compare and contrast, and then decide for yourself which is right for you
|Social Trading Benefits||Copy Trading Benefits||Social Trading Disadvantages||Copy Trading Disadvantages|
|Gain education||Hands-free||Untrustworthy influencers||Uncomfortable to let go|
|Highly social experience||High probability of success||High maintenance|
|Low risk||Takes time to build network|
|Transparent metrics||Shady practices|
No type of trading comes without risk, but with social trading, the risks are far too high to make it a worthwhile or profitable strategy. There are too many potential factors to consider, such as the influencer’s trustworthiness, their skills and knowledge, and more. Plus, it still requires execution on the follower’s part.
With copy trading, a follower does much less of the footwork, putting the onus on the strategy manager to do all the heavy lifting and show the world what they’re made of. Not only is their own capital also on the line, but so is their reputation.
These strategy managers can’t delete trades like they can posts on social media. Whatever trades they book and close, it shows via the data in Covesting. And because making a losing trade lowers their rank and not just their ROI, strategy managers aim to stay at the top of their games always.
Strategy managers are humans also, and still can have a losing streak like anyone else. It isn’t a completely risk-free solution, but when following the right strategy, the results can be astounding, and easier than learning markets on your own.
Strategy managers and followers have access to the entire suite of trading instruments and tools offered by PrimeXBT. PrimeXBT is a margin trading platform that lets traders go long and short on forex, crypto, commodities, stock indices, metals and more. With so many options under one roof, this means that any financial market is available for copy traders to choose from.
Forex currencies include majors like USD, EUR, JPY, and others, but there’s also exotic pairs from emerging markets. Commodities and metals include gold, silver, oil, and gas. All major stock indices are also included, such as the Dow Jones, S&P 500, FTSE, DAX, ASX, and more. Cryptocurrencies range from Bitcoin to Ethereum and include altcoins like Litecoin, EOS, and Ripple. All are available as CFDs to Covesting strategy managers. The variety is endless.
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