Social trading is the inevitable result of merging the powerful principles of online social networking with Internet-based investing platforms. Social trading is making online investment easier by allowing traders to learn and benefit from each other in a platform that is transparent, responsible, educational, and intuitive to human behavior. One of the underlying principles of social trading is that it displays relevant financial activity for all registered participants to dissect, something which not only lowers the barrier to entry for market beginners, but also has great potential to improve returns and lessen risk.
Social trading has been adopted by various communities of online investors who trade everything from equity securities to commodities for a living, but the first financial exchange market to get the full social trading makeover was the global foreign exchange (forex) market. The general public might not be aware of this fact because it isn’t widely disseminated by the financial news media, which is usually focused on Wall Street and the equities markets, but traders who are familiar with the intricacies of forex quickly understand why social trading perfectly fits within the world of foreign currency speculation.
eToro’s OpenBook platform and its CopyTrade feature are considered today’s best examples of what constitutes an efficient social trading platform for retail investors. Here’s a look at the social trading principles of OpenBook and how eToro is clearly making forex trading easier for everyone.
How Social Trading Entered the World of Forex
To most people, exchanging foreign currency is a mundane endeavor that must be undertaken when traveling abroad, preferably at an airport or a touristy hotel, and rarely thought of as a viable economic activity outside of the few pennies realized during the transaction. The reality of forex is that it is a very important financial cornerstone that enables international trade and that’s intrinsically tied to the performance of sovereign economies. Forex is a decentralized market in which several participants can benefit, from bank account holders who open savings accounts in foreign currency to large banks that perform large amounts of currency swaps on a regular basis. Another feature of the forex market is that it allows profitable speculation, which is what individual retail investors and major investment firms engage in.
Participation by retail investors in the vast forex market has considerably grown in the last few years. According to statistics compiled by the Bank for International Settlements, the estimated amount of money traded in forex during a typical day in 2010 was about $4 trillion. Although more than 85 percent of that volume is handled by sovereign central banks and colossal global investment firms such as Goldman Sachs and UBS, individual forex traders operating in online retail brokerage houses exchange almost a trillion dollars every day.
The initial occurrences of social trading can be traced back to the mid-1990s, when discount stock brokerage firms went online and offered retail trading platforms ideal for day traders who wanted to take control of their own portfolios. Day traders soon began using Internet tools such as Usenet, email distribution lists, Internet Relay Chat, and online forums to get together and discuss strategies, financial news releases, risk models, money management, and other issues related to their chosen economic activity.
When online social networking came of age in the first decade of the New Century, it did not take long for online investors to move into the new communities established by social media giants like Facebook and Twitter. The new social trading platforms, such as eToro OpenBook, were developed once social media became the new convention for Internet use. OpenBook is a good model for what a social trading platform should offer: pertinent information that flows freely among registered traders, analytic tools that gauge social indicators and sentiments, and detailed trade and portfolio information from members who want to share with the community in an effort to promote transparency.
Social Trading Simplifies Forex Trading
A full-fledged social trading network like OpenBook by eToro is akin to a responsible self-regulating organization for online traders. Like other organizations, OpenBook members are interested in elevating the standing of their community in the world, and to this extent they welcome new members and allow them to connect and collaborate with experienced traders from whom they can learn. The forex learning curve, which is often considered difficult, can be easily overcome by new traders who register for OpenBook. While there is no shortage of online courses, books, videos, and tutorials available to forex newcomers, there’s nothing like following live trading activity in real-time, which is precisely what all traders are privy to once they join the eToro OpenBook community.
Besides the real-time live feed of forex trading activity, OpenBook members can also review trades placed by other fellow traders and not only analyze them, but also copy them. CopyTrade is one of OpenBook’s most powerful features, as it lets retail investors take advantage of past performances automatically. With CopyTrade, a measured trader could allocate a certain portion of fund in his or her portfolio -for example, 10 percent- and automatically copy the market positions taken by a more successful and experienced trader. As with other online social networks, social trading platforms allow the creation of peer circles in which like-minded forex traders can stick to common interests like specific currency pairs, going long versus short, contrarian investing, etc.
By offering social trading features such as information sharing and CopyTrade, OpenBook is already changing the landscape of forex trading by making it easy, intuitive and warm. eToro is interested in providing fair and reasonable access to the global forex market, something that OpenBook has thus far greatly accomplished. Instead of reviewing complex candlestick charts looking for technical indicators, or going over long and cryptic economic reports, forex traders can just simply connect with their peers and review their strategies, ask questions, copy their trades, and generally enjoying the great sense of belonging that social trading networks are intended to provide.