Copytrading vs. social trading: Pros and Cons
Trading activities have evolved beyond reading books and tinkering with strategies people think might work.
This approach has led to hits and misses, with more misses and hits.
The effects are many-drawn down portfolios, missed trading opportunities, high blood pressure and more.
Our panel of experts have considered the pros and cons of the two prominent forms of trading available: copytrading and social trading.
Here’s what they had to say.
Marius Grigoras, CEO at BHERO
“As the CEO of BHero, a fully regulated cryptocurrency launchpad built on top of the Elrond Network, I can confidently say that copytrading and social trading activities have their own set of benefits and drawbacks, and the key to optimal growth and output lies in the individual trader’s preferences and goals. Copytrading allows traders to replicate the trades of successful investors, saving time and minimizing the risk of bad investments. However, this method lacks personalization and may result in missed opportunities or losses if the original trader’s strategy fails. On the other hand, social trading allows for more personalized and community-driven investment decisions, enabling traders to interact with others, get real-time feedback, and collectively achieve better results. Nonetheless, it requires a certain level of expertise and active involvement, which some traders may not have the time or willingness to commit to.
In terms of deployment, traders should consider their risk appetite, investment goals, and available time when choosing between copytrading and social trading activities. A hybrid approach, utilizing both methods selectively, can also be effective. For instance, traders can use copytrading to replicate successful trades in their preferred markets while engaging in social trading to gain insights, feedback, and ideas from a wider community. At BHero, we believe that providing a variety of investment options and empowering traders with the right tools and resources is crucial for optimal growth and output. Whether through copytrading or social trading, BHero’s mission is to increase the Elrond ecosystem safely and legally and empower traders to make informed and profitable investment decisions.”
Francis Fabrizi, Accountant at Keirstone Limited
“Copy trading was introduced to retail traders by brokerage firms such as Etoro around 2010. Since then, Copy trading has risen in popularity and we are seeing more brokerage firms offering this as a way to entice new traders to sign up to their platforms.
The main reason Copy trading has become one of the top features beginners look for in a brokerage is due to the ‘Learn and Earn’ element it provides. Typically, once they have set up their trading account, traders will gain access to chat rooms where they can discuss their chart analysis and trades with experienced traders from around the world whilst copying their trades and hopefully making a profit.
Trading can be very stressful for novice traders. It usually involves a lot of preparation and screen time which can lead to mistakes being made. Copy Trading reduces this risk as trades are placed by experienced traders. Professionals can also give tips and educational content within the networking groups which could allow other traders to understand why a particular trade was taken.
This is not just for novice traders. There has been an increase in professional traders using this tool as a way to diversify their portfolio.
Copy Trading is great for those who want to save time and effort by setting their account to copy their chosen professional’s trades and reduce or even eliminate the analysis side of trading altogether. This is a big advantage for those wishing to make money but are not really interested in how trading works.
This is similar to the concept of Trading Signals where a trader sets up a group and sends trade ideas in the form of Entry point, Stop Loss and Take Profit levels. The difference between this and Copy Trading is that it is not limited to just one trader sending signals. Traders are able to choose multiple professionals to follow and interact with. They will also have access to all their trading performance before choosing who to follow, therefore reducing the risk of losing too much Capital. This is not usually shared by Signal Providers.
There are some disadvantages to Copy Trading as a professional’s financial goal might not match the goals of the trader copying them. For example, if a professional has a Capital of $100,000, they could decide to risk 1% per trade of that capital in the hopes of gaining 3% profit. The profit would be $3,000 and they would have risked $1,000 for one trade. Comparing this to a trader who has Capital of $500, they would only make $15 if the trade is profitable. The risk would be $5 which is likely to be triggered almost immediately due to spread and margin levels the brokerage provides.
Similarly, it is unlikely only one trade will be entered into at a time especially if multiple professionals are being copied by the trader therefore, it is possible for a trader to have a very high percentage of their Capital at risk.”
Mark Chrysler,Owner at Routine Investing
“In recent years, copytrading and social trading have become increasingly popular among investors and traders. While both approaches allow individuals to participate in the financial markets with minimal experience, they have distinct differences in their approach and application.
Copytrading involves copying the trades of experienced traders in real time. Essentially, a trader selects an experienced trader to copy and replicates their trades automatically, in proportion to their investment amount. The advantages of copytrading are that it requires little to no market knowledge or experience and the ability to learn unique trading styles through professional traders. However, a significant disadvantage is that traders have the potential for losses if the chosen trader does not perform well. It can also be difficult to identify suitable traders with consistent returns.
On the other hand, social trading is a form of trading that allows traders to collaborate, share ideas, and copy the trades of other traders in a social network.
Social trading provides traders with the opportunity to learn from other traders’ experiences and strategies, making it ideal for beginners looking to build a knowledge base in the markets. Unlike copytrading, social trading offers traders the flexibility to customize their trades and manage their risk.
However, the downside is that social trading requires a certain level of knowledge and experience, and traders may be influenced by inexperienced or unqualified traders.
To deploy copytrading and social trading for optimal growth and output, traders must assess their level of knowledge, experience, and risk tolerance. For beginners with little experience, copytrading may be a good starting point to learn about the markets and how experienced traders approach them.
However, as their knowledge and experience grow, they can shift to social trading, where they can collaborate with other traders, learn new strategies, and build a network of like-minded individuals.”
Andre Oentoro, CEO and Founder at Breadnbeyond
“Copy trading involves replicating the trades of a successful trader automatically. Traders select a trader whose trading style they would like to copy and allocate a portion of their capital to replicate the trader’s trades.
This allows traders to diversify their portfolios by copying trades from multiple traders. But, it requires traders to rely on other traders to make trading decisions, which can limit their ability to make independent decisions.
On the other hand, social trading involves sharing information and trading strategies among traders in a social network. Traders exchange information, trading strategies, and opinions on different markets, trading tools, and financial instruments.
While it provides an opportunity for beginners to learn from experienced traders, social trading involves trusting the information provided by other traders, which may not always be accurate.
Both copy trading and social trading are two effective trading strategies that can help traders maximize their profits and minimize their risks. To deploy them for optimal growth and output, traders should do thorough research, diversify their portfolios, manage risk, stay informed, and monitor performance regularly.”
Angelo Ciaramello Founder/CEO at The Funded Trader
“In recent years, copy trading and social trading have grown in popularity due to the convenience they provide. Copy trading, which entails automatically replicating another trader’s decisions, is an excellent method for novice traders to enter the market with minimal risk.
It also enables seasoned investors to diversify their portfolios by simultaneously imitating multiple traders. Copy trading has disadvantages, including the potential for losses if the copied trader makes poor decisions.
Social trading, on the other hand, entails following and exchanging trading advice from traders who have already achieved trading success. This method is advantageous because it allows novice investors to “learn” from experienced traders without having to make all of their own decisions.
Copy trading and social trading differ significantly in how they operate. Copy trading is based on automated processes, whereas social trading is more manual.
Copy trading is essentially a “set it and forget it” strategy in which the user selects which trader to imitate and leaves the rest to the software.
Social trading, on the other hand, requires users to actively partake in the trading process by interacting with traders and other investors, sharing their own trade ideas, and following market news.
When comparing the advantages and disadvantages of copy trading and social trading, both have benefits that, depending on the circumstances, can be advantageous.
Copy trading enables users to avoid making decisions since all trade decisions are based on the activity of the copied trader. This makes it ideal for novice traders who may lack sufficient market knowledge to make informed decisions on their own.
However, if the trader being imitated is not performing well or ceases trading altogether, those who followed them may incur losses. Social trading offers greater control than copy trading because users have access to recommendations, market news, and analysis from their peers.
This enables users to make better judgments based on their own analysis and insights. However, this comes with inherent risks, as not all merchants are trustworthy and success cannot be guaranteed.
The optimal use of copy trading or social trading for optimal growth depends on the user’s specific objectives and risk appetite. If you are new to investing and want something that is largely automated and low-risk, copy trading may be a decent choice for you.
If you desire greater influence over your investments, however, social trading may be more suitable for you. Before making a trading decision, it is essential to conduct your own investigation regardless of the method you choose.”