What are Social Trading and Copy Trading?

While there’s a strong link between social trading and copy trading, they’re not interchangeable. We’ll show you why, and cover their respective benefits.

  1. he Pros and Cons of Copy Trading

  2. The Reason Why Social Trading Means So Much to the Cryptocurrency Industry

  3. Addressing the Lack of Innovation in Social Trading

 

There’s a clear correlation between social and copy trading, but they’re ultimately different — anyone who uses the two terms interchangeably is making a simple but serious mistake.

Here’s a simple breakdown:

  • Social trading is best described as activities facilitating trader-to-trader interactions that strengthen the cryptocurrency community

  • Copy trading is a part of social trading, in which traders mimic patterns established by fellow traders (specifically those with proven experience and, ideally, success)

Whether you’re a newcomer to the fast-moving world of cryptocurrency trading or you’re a professional, it’s vital that you understand social trading and copy trading clearly.

We’ll take a closer look at both concepts below to help you recognize what sets them apart and to avoid costly mistakes.

The Pros and Cons of Copy Trading

Copy trading is fairly simple at its core: once a trader completes a successful trade, they can choose to share said social trade with fellow users. Others are free to utilize this copy trade for their own market activities.

Both the initial trader and the copying trader can reap their own rewards. For copy traders, there’s the opportunity to gain a deeper insight and discover fresh techniques that could prove helpful in years to come.

And for the trader who chooses to share their trade, one obvious reward is the commission. This could be a percentage or fraction of earnings whenever the social trade they originated is copied by others. Professional traders often find the option to share trades is a valuable extra revenue stream.

Ultimately, everyone stands to win with copy trading. That’s why copy trading has become a popular fixture of cryptocurrency trading in the past few years. New traders continue to try it week on week, picking up more practice and — ideally — learning to become stronger traders.

They’re also likely to share their own successful trades with other copy traders in the future, to benefit from the associated commission.

Still, anyone considering copy trading should keep a few factors in mind.

Most of the people choosing to use the copy trade feature are amateur traders, which means they could make copies that fail to generate the sort of profits they hope for over time.

For example, it’s common to see new users copy traders who have large followings without considering their options carefully first. Traders who have established a sizable following might not always be trustworthy, so it’s worth taking the time to research someone before copying their trade.

The Reason Why Social Trading Means So Much to the Cryptocurrency Industry

Cryptocurrency continues to gain more and more traction around the world. Tens of millions of people use it, whether that’s Bitcoin, Litecoin, or one of dozens more.

It’s clear that an increasing community of people are looking for fresh investment opportunities within the crypto industry — and a high number of these are beginners. It can be a daunting world to step into, but social trading presents an ideal opportunity for newcomers to start their cryptocurrency adventure on the right foot.

Whenever traders share details about upcoming events or trading, they’ll accrue additional insights that could improve their choices. They may even ask questions related to trading procedures and pick the brains of experienced experts.

Still, the consistent rush of beginners means crypto companies have a responsibility to make sure they avoid hindering the cryptocurrency community’s long-term growth. Operators that provide social trading services should check traders to determine whether they’re likely to cheat other users or breed general distrust.

If investors know the social trading platform they’re using is safe, they’ll approach it with more confidence and might encourage others to try it too. This could help to elevate the crypto sector’s positive reputation to new heights in the near future.

Addressing the Lack of Innovation in Social Trading

Sadly, the fact remains that there’s been a distinct lack of innovation in social trading and copy trading lately. A small number of exchanges offer copy trading at present, though that could change soon enough — as exchanges are free to borrow concepts from others with no legal restrictions getting in the way.

And that’s a huge part of the innovation problem.

Ultimately, the cryptocurrency industry is in need of a solid IP (intellectual property) legal structure to prevent one exchange liberally stealing other’ work. This is a particular threat for new and emerging exchanges.

On the other hand, some people may suggest that sharing ideas has worked in the crypto industry’s favor for some time now. And, they might go on to say, any interference could lead to unfavorable disruptions or changes.

However, the argument against this viewpoint would be that creating innovations demands a lot of hard work and commitment. That’s why laws put in place to govern such unfair competitive activities are crucial: companies may feel motivated to try more creative, outside-the-box ideas with proper IP laws in effect.

Such freedom may lead to true innovations in social trading which help to unite the cryptocurrency community even more than it is today. Investors would probably be happy to support exchanges that demonstrate innovative thinking, and exchanges may feel encouraged to be creative without fear of seeing their best ideas implemented elsewhere without permission.

It’s fair to say that the cryptocurrency industry would continue to win new respect from the more traditional corners of the global financial community by adhering to fair industry standards. There’s work to be done, but the potential benefits should inspire us all to push for positive change.