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As the trading landscape becomes more accessible and seamless for average individuals and small businesses, numerous novel trading techniques must be considered. The digitalisation of the trading ecosystem has allowed investors to unlock new ways of reaping profits and utilising the wisdom of other experienced traders. Simply put, it is no longer necessary to have decades of experience to make it big in the trading landscape.
This article will discuss some of the most successful strategies that let investors follow the path of industry leaders.
Social trading lets traders gain access to online communities, acquiring valuable insights and much-needed guidance from experts.
Copy trading allows individuals to follow the investment pattern of well-established traders on the market.
Mirror trading utilises an advanced algorithm to identify best practices on the market and apply them to a specific account.
What is Social Trading?
Social trading is a product of the latest digital innovations, letting investors join online communities to increase their knowledge, acquire second-hand experience through community support and discuss various strategies with industry experts.
As the world has witnessed exponential growth in digital accessibility, more individuals have access to online communities across the globe. Virtually any topic of discussion, occupation, and concept is openly discussed on forums like Reddit. Thus, developing a trading community for mutual support and constructive discussions was simply a matter of time. Today, social trading has become one of the most popular ways to get into the industry.
In the past, aspiring traders had to start from square one, as they had no effective ways to assess the investment strategies of others or the chance to engage in a conversation with them. So, traders had to inevitably make their own mistakes, study bloated textbooks and re-discover strategies already discovered by somebody else thousands of kilometres away. With social trading, the barriers to entry have been reduced significantly, as the novices can master the best practices in months or even weeks.
Moreover, this technique is not just a great strategy to learn from the best but a great way to engage in compelling discussions and analyse the validity of new techniques. With social trading, every strategy can be evaluated by experienced community members, helping newer traders avoid rookie mistakes. However, it is essential to note that this approach fundamentally differs from copy and mirror trading.
With social trading, investors are still encouraged to craft their unique strategies instead of following the footsteps of the best traders in their respective fields. Thus, this strategy can be viewed as a learning and developing experience that sets traders up to make their own decisions. However, traders will not be left to their own devices even in the execution stage of their investment career, as they can double-check their reasoning and strategies within the online community.
Pros and Cons of Social Trading
As outlined above, social trading is an excellent gateway to mastering the science of trading. The communities mentioned above are present in most industries like Forex trading, other fiat financial markets and even crypto. By entering one of these communities, traders can acquire practical knowledge about trading that isn’t readily available in textbooks and crash courses.
However, social trading has distinct shortcomings that must be considered. Firstly, the advice and suggestions provided within these communities might be slightly incorrect or misleading. After all, social trading communities are optional spaces where many individuals might share subjective opinions. These opinions could lead to faulty strategies that result in losses instead of profits. Thus, aspiring traders must account for the margin of error and employ their reasoning when evaluating the community suggestions and guidance.
What is Copy Trading?
Copy trading is the next lucrative strategy for investors who lack the experience or time to study and engage with trading markets on a full-time basis. With this approach, investors can replicate the trading activities of well-established individuals and businesses within the industry. Naturally, copy trading is an online activity that requires setting up a trading account and selecting the following trading pathways.
While the platform will provide the strategies, traders can still select which investors to follow. Also, they can modify the strategy in real time, choosing to replicate the trading decisions of industry leaders with a more careful approach. For example, if the targeted trader utilises a high-risk approach, copy trading allows users to tone the high-risk investments down and replicate the safer trades. This is a great risk management strategy that enables users to benefit from successful trades without fully committing to risky investments.
Pros and Cons of Copy Trading
As discussed, copy trading is an excellent opportunity for traders who don’t have the time or resources to explore the trading landscape comprehensively. This trading technique is a great way to make part-time profits with a relatively lower risk. Copy trading services eliminate rookie mistakes since they replicate experienced investors' activities.
However, there is still a considerable risk involved in copy trading. It is crucial to remember that high-profit trading always involves a certain degree of risk. Even the most proven and established investors can occasionally make critical mistakes and incur significant losses. Thus, traders must remain vigilant even if they follow the top investors in their respective markets.
Finally, mirror trading is the most automated version of replicative trading discussed in this article. This trading technique allows users to utilise complex algorithms that aggregate best trading practices in respective markets. The mirror trading algorithms monitor trading activities and assess their effectiveness with pre-determined evaluation models. As a result, traders receive the most optimal investment strategies available within the industry.
This approach is an excellent option for traders who wish to completely outsource their investment activities and only choose two aspects – the trading sector and the investment amount. An automated algorithm manages everything else. So, mirror trading is a magnificent option for individuals or businesses that want minimal exposure to the trading market but still turn their spare funds into lucrative investments.
Pros and Cons of Mirror Trading
Mirror trading is optimal for newcomers or extremely busy traders who lack the experience or time to understand and master the trading market. It is also highly accessible, with numerous platforms offering simple ways to adopt this technique. However, even the mirror trading practice is not devoid of market risks and potential losses.
It is crucial to remember that even the most advanced algorithms can make mistakes and exercise poor judgment. Empirically, automated systems have showcased the inability to recognise more complex market patterns. They are also susceptible to making hasty decisions. Thus, traders should manage their expectations and realise they can’t avoid certain losses even with state-of-the-art algorithms powering their investment decisions.
Which Trading Strategy Is Right For You?
The strategies discussed in this article offer varying degrees of interactivity and risks. Social trading provides the highest degree of freedom but is admittedly the riskiest endeavour. Unlike mirror and copy trading, this technique still requires investors to construct their strategies and carve their paths.
Copy trading presents a slightly more limited but safer approach, enabling users to copy the decisions of other traders on the market. However, users can still modify the strategies mentioned above and employ a slightly different approach.
Finally, mirror trading is the least involved version, which lets users completely outsource their investment activities to the automated algorithm. It is generally advisable to select the perfect strategy depending on your experience, skills and available time. For example, investors with ample time and adequate experience would do best to adopt social trading. In contrast, less experienced and busier traders can harness the wisdom of others with mirror and copy strategies.
As trading strategies become more digital and accessible, numerous ways exist to enter the market without months or years of preparation. However, it would be a mistake to presume that social, copy and mirror trading strategies are without risks.
All three techniques feature varying market risks and error possibilities. Aspiring investors must decide the perfect mix of freedom, security, and risks when deciding their optimal trading technique.