Forex brokers not only offer trading opportunities for the forex market, but they also offer binary options trading, contracts for difference (CFDs), commodities, exchange-traded funds (ETFs), cryptocurrencies, and equities. These instruments are traded in financial markets and are vital in generating passive incomes for wealth maximization.
The financial markets are susceptible to political, economic, social, environmental, technological, and legal environments prevailing in national or global markets. Consequently, the prices of the financial instruments are volatile, and forex brokers provide tools such as analytical charts and news feed features to enable the traders to make informed investments decisions to hedge against losses. Innovative platforms such as the MetaTrader 4, CTrader, and MetaTrader 5 have revolutionized trading by allowing traders to access all the tools to customize their bid and sell orders.
While the MT4, MT5, and CTrader platforms offer trading tools that enable traders to manage risks, interpretation of the charts may be daunting, especially for novice traders. Additionally, the dynamic financial markets can be stoked by factors that may take time to reflect on the indices and news feeds which may prejudice investors. Hence, forex brokers are incorporating social trading platforms to facilitate community trading to minimize losses by allowing traders to utilize strategies from experts.
Features Of Social Trading
Social Trading Forex Brokers' platforms aim to shorten the learning curve for investors to facilitate maximum investments and increase their commission and broker fees revenue by encouraging profit generation.
Social trading has the following features.
1. Lead Investor
This expert trader is often selected based on their experience in trading and expertise in financial markets. The leader uses the analytical tools and indicators to make informed investments decisions which investors then adopt.
A leader who comes up with winning strategies usually gets many followers who make fees subscriptions for the services.
2. Follower/Novice Investors
Investors copy or mirror the strategies of the lead investors in exchange for a token. In some social forex brokers' platforms, there could be an option to execute the strategy or modify the leader's approach after considering the various market indicators.
3. Broker
The broker offers a platform where investors interact and execute orders in exchange for fees.
It is critical to note that brokers such as eToro rank their lead investors in terms of their strategies outcomes that result in gains and risk. Therefore, investors need to consider the possible gains when selecting a lead investor and hedge the odds of losing by also considering the risk. Social trading does not guarantee profit as financial markets are mainly driven by speculation, resulting in unexpected outcomes.
How Social Trading Takes Place
The social features of a forex platform can facilitate trading in three ways.
Copy-Trading
The platform can enable the investor to access and duplicate the leader's strategies while selecting to modify some aspects of the trade of adopting the strategy in full.
Auto Trading
This is an option where an investor customizes the platform to place orders that are consistent with the lead investors automatically. For auto-trading to be successful, the orders must be placed in real-time.
In some social forex brokers, auto trading can be set on the MT4 and MT5 platforms. For instance, Peperstone offers Duplitrade, which enables investors to execute bids on the MT4 platform following the lead investor's strategies automatically.
Trading Sentiments
Social forex brokers such as iForex have a social trading sentiment feature that incorporates social media features that enable all investors to share their sentiments about a financial instrument in a market. Hence trading sentiments play a critical role in disseminating information and can be a better alternative to economic news feeds.
Best Social Trading Forex Brokers 2021
eToro: The platform is regulated by the FCA and CySec and has been positively reviewed by investors as the best social trading platform for beginners.ETX Capital: The forex broker is registered in the UK.
IForex
Pepperstone
AvaTrade
GO Markets
OctaFX
NAGA
Darwinex
RoboForex
CXM Trading
Markets.com
FinMax
Capex
Pocket Option
Expert Option
Becoming An Investor
The best social trading forex brokers offer an ideal option for creating a passive income. However, the minimum deposit required for social trading is higher in most markets to cater to the increased brokerage fees.
Despite the return on investments being relatively higher, the element of risk in financial markets is still unavoidable. Additionally, there are platform-related risks such as security, reliability, privacy, and confidentially that are critical, and investors should consider them before signing up for a trading account.