As we all know, social trading is a form of trading where investors connect with expert leaders in the market and learn from their investment strategies. This type of trading involves both copy and mirror trading as its subgenres.
By leveraging the expertise of these leaders, investors can make increasing profits while minimizing their risk for lost investments. However, if you are a starter who has just started experiencing the vast landscape of trading, it is important to follow some unique and efficient practices.
Read below to discover some of such practices and how to integrate them into your strategies.
1. Conduct Thorough Research
You don’t just start following random investors while starting out on social trading. Rather, it is advised to first understand What is social trading? Also, conduct thorough research and find unique investors who offer effective strategies and trading styles. There are a plethora of traders out there, so it can be really difficult to make the right choice.
To start with your research, you can study the historical performance of some selected traders and how their strategies affected their results. In this regard, you will have to pay attention to both winning and losing traders to measure the actual risk associated with different strategies.
Also, opt for traders whose trading style aligns with your interests and investment goals. It will ensure that you are making the right choice for your long-term goals.
2. Embrace Diversification
Every experienced trader will give you advice to diversify your investments across multiple platforms and traders. This approach decreases the potential risks associated with investments and will reduce the impact of one poor performance from a trader.
To ensure that you are diversifying in the right way, follow multiple traders whose trading styles and asset classes vary widely. This will help you cash different market conditions to your advantage. Choosing different asset classes like forex, stocks, and cryptocurrencies is also advised to eliminate the risks associated with a specific market.
3. Prioritize Risk Management
As it is always said, “Don’t put all your eggs in one basket.” This phrase stands true, especially when it comes to social trading. Only dedicate a specific portion of your capital to social trading. Speaking precisely, this should be the amount you can afford to lose.
In this context, remember to set stop-loss orders to avoid or limit losses on individual trades. For starters, a stop loss order is a type of order placed with a broker where you agree to sell a stock at a specific price.
This practice will help you avoid emotionally driven decisions – a mistake most newbies make in social trading.
4. Continuously Educate Yourself
Social trading is all about gaining more and more along the way and implementing it to increase your profits. Stay informed of the current market trends and developments, including financial news, economic indicators, and any specific events that can impact the market. Gaining this knowledge will help you make informed decisions, which will then help you make more and more profits from social trading.