Before we can start discussing about Social Trading, Here is a brief history about how it has grown over the years.
Short history of Trading social Networks
2000’s – First trade copying companies are born. This service is called Mirror Trading and it accumulates best trader deals and lets people create mirroring accounts. Not many options of adjustments are available and there are quite a lot of errors and slippages in the systems.
2006 – Zulu Trade is launched with a slightly improved system allowing users to manage some risk control parameters.
2008 – Economic crisis hits the whole world. Stock markets go in a recession and more and more people (both investors and ordinary humans) turn to forex as it is the only market that not only avoided crisis but allowed to make profit from it.
2009 – Seeing the great potential and interest for the exchange market from people with no experience in trading many forex brokers integrate social trading into their systems. The most popular social system developer is Tradency whose platform is built-in by many brokers in 2009, 2010 and next years. Unfortunately there still are a lot of problems in the systems as it is very challenging to synchronize many thousand trades in real-time.
2011 – Etoro introduces Copy Trader which sets a new benchmark for social trading. It clearly stands out from the crowd opening the doors of currency trading to large audiences allowing beginners to tap into the wisdom of crowds. The system is made radically more simple, intuitive and enjoyable than any forex platform out there. It is more like a Facebook for traders where people can follow the best investors, interact with them, see all their transactions live and copy their trades. But there are still occasional hiccups in the system at this early phase and some of the guru traders are cheating to get higher rankings.
2012, 2013 – Both Etoro and Zulu Trade keep investing large resources to improve their social platforms. Influenced by the success of Etoro, Zulu also redesigns the whole platform making it also more visually appealing. Zulu continues to expand and add new brokers to its system as it allows users to copy traders from different platforms, not only Zulu’s. Having signal providers from different platforms is Zulu’s strongest competitive advantage. Etoro keeps steady focus on delivering the best user experience, wins awards and seems to be working on preventing the rating manipulations of the guru traders.
Just copy the best traders, sit back and watch how they make money for you – this really sounds too good to be true! So is there a catch? The answer is Yes and No. There is no catch in terms of the idea and the system, social trading is built to make all the users happy and also make some profit for the brokerage of course. The catch or the challenge lies in two aspects:
The risky and unpredictable nature of the currency market in general
Not all top ranked signal providers can be fully trusted
Some signals are traded by novice traders that might have Seasonal Good Performance
Some signal providers would take so much risk that can be greater than you'r risk tolerance.
Sometimes there are server connection issues that can cause lag in the entry & exit.
Sometimes some broker may block connections to trading servers that might be not very convenient.