What is Social Trading? - The basics you need to know

by Startacus Admin

"Everyone knows how to invest in the stock market."

No, I didn’t believe it either the first time I heard it.

I was sitting in the audience of a talk at Web Summit 2014. On stage was a very charismatic gentleman by the name of Yoni Assia, co-founder and CEO of popular social trading network eToro.

What he had to say on the matter of trading was very enlightening, and certainly reframed the way in which many of us may have previously thought about trading, investments and the stock markets.

His opening statement “Everyone knows how to invest” is one that echoed in my head for quite some time afterwards…and on reflection, it makes perfect sense.

Yoni’s argument was a simple one. Every single day of your life your are showing that you know how to invest through the choices that you make as a consumer. By picking a certain product / service  you demonstrate that you have faith that product / service, and that faith can easily be converted into an investment.   

It’s a straightforward approach, but one that is gaining increasing integrity with the further growth of social trading networks.

If you have taken your eye off the ‘what's hot’ tech list in recent times, you can be forgiven for wondering what on earth a social trading network is. The whole thing is very simple, but incredibly clever, our guide to the basics will give you a good grounding in what it’s all about.

What is Social Trading?

Social trading is a fairly new concept that combines some of the characteristics of traditional social networks to offer users an easy and accessible way to get involved in the financial markets.  

Social trading takes place on what are called social trading networks. Broadly speaking, these platforms allow users to harness the collective skill, know-how and experience of the community, to inform their own investments.

Sounds rather complicated doesn’t it?  It really isn't.

In fact if you are one of those people who has wondered about trading on the stock market, but inevitably concluded that it is beyond your capabilities, then social trading networks may provide a user friendly and straightforward option, that allow you to try your hand at it from the comfort of your own home.

How does social trading work ?

The specifics of how each social trading network operates varies quite significantly, so it’s important to always check the small print / terms and conditions to make sure that you fully understand them before you begin.   

Generally speaking, after creating a user profile (which is normally free) you are able to add funds to your account which can then be used as capital to invest in publicly traded companies. The minimum sum of money per transfer is usually quite small, perhaps around $50, which means you can get a feel for the process without risking a heavy loss of money!

After this point your investment is subject to the fluctuations of the market, which will either increase or decrease their value. You can maintain your investments for as long as you like and when you decide that the time has come to release your funds, they can be deposited back into your social trading account or transferred to your bank.

Transactions are usually processed directly by the social trading network, which will normally take a small percentage as their fee.   

The Social Aspect

The social functions of these networks is a key benefit and one of the main ways in which they have managed to simplify the process of investing and opened it up to a huge range of people. They generally promote collaboration amongst their communities, and see the value of having open an open exchange of information which allows users to harness the collective skill, know- how and experience of the community. Some of the key aspects which help contribute to this aim include;

• The ability to follow and track the investments of others within the community

• Being presented with information on the top investors within the various trading networks

• Being given the opportunity to copy the investments of others

• Having the ability to interact with other investors in the community, meaning that there is usually a support network available to assist you.

If you fancy invesigating the matter a litle further there are quite a few social trading platforms to choose from including ZuluTrade, eToro and Signal Trader.

*We know that people say this about all sorts of things, but this time it’s like really, really important - Always read all of the terms and conditions before creating an account…. got it?

If you like this post you might also like our handy post on the basics of Bitcoin. 

• #stock market
• #social trading
• #social trading platform

Published on: 12th November 2014