Looking back to last year, I knew nothing about Social Trading and even though I’ve got a good understanding of investments and have dabbled in the stock market before, Trading in general and Social Trading were a completely new thing to me.
I’d read both amazing reports of how people had made money without having to do much at all as well as articles describing how it’s impossible to make any money at all from Social or Copy Trading due to the way the platforms are set up, so the only way to get an answer to this was to try it myself.
For those of you who have never heard of Social Trading or Copy Trading before, this is a relatively new phenomenon, where instead of investing in the stock market, currencies or commodities directly, you invest money in a trader and copy a relative percentage all of the trades that they make.
This means that you are effectively trusting in the knowledge of the trader and invest in their strategies rather than doing this yourself.
There are no fees to do this, apart from the small percentage of each trade that the platforms will take.
3 Things I Learned About Social Trading in 2016
Spend Time to Research your Traders
There are many different platforms out there, each with thousands of different traders for you to choose from, so how do you know which one to invest your money in?
Personally I opted for eToro as it’s a fairly easy system to understand for the beginner and has a simple to use interface.
I also received a $1000 bonus for signing up with these guys when I invested $2500.
Each trader on the eToro platform has a profile, which gives you different metrics about their performance, what they invest in, the amount of assets they are managing, the maximum they’ve lost in a single day, their trading history since they’ve been on the platform and most importantly, a risk level, which is a metric that eToro generates to determine the traders appetite for risk.
My advice is to set up a virtual account to start with, choose a number of traders to follow with virtual money for a few months and only when you find a trading profile and risk level that you are happy with should you jump in and invest in them.
If possible try to interact with the trader themselves to see how rational they are, after all they’re going to be in charge of your money.
Create a Balanced Portfolio
It’s easy to get tempted and stick all of your money on a trader who’s seen massive profits over the last month or even 3 months, however, BE CAREFUL.
I have found that traders who bring home incredible returns for a few months are the same guys who will blow up their account and bankrupt themselves. The reason for this is their attitude to risk.
They’ll often have a high leverage and will risk a large portion of their account on single trades, which can either make them a killing, or ruin their account.If you’re going to invest I would suggest that you split your money out across a minimum of 5 traders, who have varied profiles.
By this I mean are split across:
• Their risk level – In eToro I would invest in anyone with a risk level over 7
• What they invest in – Split between commodities, forex and stocks
• The size of assets they manage
• The maximum drawdown level
• Whether they are a short term day trader or more of a longer term investor
Avoid The Most Popular Profitable Traders
If you base your investment decision solely on the basis of who is making the most profit, then you’d be crazy.
However, a lot of people will do this and see traders who are showing wild profits of hundreds, if not thousands of percent of profit.
Most people will see this, their big, fat, greedy eyes will light up and without thinking about it much will invest their money.
What happens next?
You guessed it, sooner, rather than later the trader is going to take one too many risks and their account (and therefore your investment) will become worthless.It’s strange because often these guys will have a lot of copiers as well, so a lot of people will be affected when these accounts are blown up.
The key lesson here, is learning to manage your appetite to risk.
What Did I Achieve?
I feel that I’ve got a good understanding of how Social Trading works now, particularly on eToro and I managed to make a bit of money from this.
It was interesting researching into the various traders, trying to understand their strategies and it was always a bit of a thrill when I logged into my account to see how much money I was making or losing.
Low Light of the Year
I’d been following Mister G who writes a blog about Social Trading and seemed to have a good knowledge of what he was doing, was quite responsive and cared about steady, long term growth, which is what I was looking for.
For some reason as soon as I invested in January he seemed to go a little crazy and was taking bigger risks with his investments.
This meant that in Jan he lost 20% and Feb 15%.I can accept this but this was different to his risk profile and what irked me most is that for someone who was very responsive in the community previously, after he lost a lot of his own and other people’s money, he went pretty quiet and didn’t respond to questions around his investment strategy.
Luckily I only invested $350 in him and ended up losing about $60 of that.
How Much Time Did I spend?
The good thing about Social or Copy trading is that once you’ve done your research you don’t need to invest too much time into this.
Whilst it’s definitely good to keep an eye on the traders that you’ve selected, I wouldn’t recommend switching around too often, as if you’ve picked a good trader they will have a strategy that lasts a few months rather than trying to make a quick buck.
This means that you might need to suffer a bit of a loss in some cases before you can make a gain, so just be patient.It’s also a good idea to have a watch list and look for other traders who you could potentially invest in, in the future.
Overall you don’t need to sink a lot of time into this, which is a massive benefit.
How much Money Did I make?
Well, to be honest I’m not so sure about this at the moment.
I invested a total of $2500, from which I got a $1000 bonus.In my account at the moment I have a total of $3541 equity.
I’m not sure if I can withdraw the full amount so at a bare minimum I guess that I’ve made a whopping total of $40
Was it Worth The Effort?
Well, the good thing is that there is not too much effort that you need to put into this, however, there is a certain amount of risk that you are playing with.
Most of the traders that I invested in were fairly low risk, hence my reward being fairly low as well.
To be honest, apart from doing some of the research, and not having too risky a portfolio, this does feel a bit like gambling to me.
I don’t think there is a massive amount of skill involved at this level and you are kind of pinning a tail on a donkey, but it’s a bit of fun.
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