Most of today’s wealthy traders made their fortune from years of trading and expertise in different markets, including failures and successes. However, today’s technology helps new traders shorten the learning curve and build on other traders’ experiences and lessons.
Some of these contemporary trading strategies involve following experienced traders’ tactics and steps, saving years of trial and error, and quickly making in the financial market.
Social, copy, and mirror trading are three different approaches to trading in the footsteps of successful investors. Let’s discover the differences between these strategies and choose the one suitable for you.
Understanding Social Trading
Social trading emerged with the rise of online communities and social media platforms. Social trading entails joining a group of investors and trade enthusiasts who share their opinions and experiences about financial markets and securities.
This tactic is a little bit more distinct than just following other traders. Instead, it entails listening to others’ practices and applications in trading and building your own projection of the market.
This strategy lowers the entry barriers for newbies, who can learn from actions taken by other traders and try to implement similar strategies if they prove successful.
A community may consist of Forex, stocks, and crypto traders who discuss the effectiveness of trading strategies, debate financial news, and speculate on newly trending securities.
Advantages of Social Trading
Social trading encourages brainstorming and discussions among group members, which strengthens the trader’s analytical skills and rational thinking and reasoning. Therefore, it helps traders optimize their trading strategies over time.
This strategy gives room for critical thinking and constructive debate rather than blindly following another trader’s footsteps.
However, the only downside to social trading is that what works with another community member may not work with you. Therefore, when you try to copy someone else’s strategy just because it worked with them, there is still a chance that it will fail with you.
Moreover, the recommendations that you might receive from community members are not validated as professional advice and might render you lose your trades if you follow without critically testing any strategy.
Understanding Copy Trading
Copy trading incorporates a mixture of following successful traders’ paths while enjoying a level of freedom to fine-tune your strategy. Following this approach, the trading platform allows you to choose the trader you want to follow and the trading strategy you want to copy.
However, you will have the freedom to conduct the same changes directly on the strategy while applying it in the market. Copy trading is ideal for those who do not have time or resources to explore and learn trading comprehensively and want to make some quickly.
Advantages of Copy Trading
Copy trading is suitable for those who want to follow a successful trader’s steps but still want to enjoy some level of freedom to lower the risk or decrease the leverage to avoid risks undertaken by the trader.
This way, a new trader can engage in the market without wasting so much time learning the market and excelling in different market orders and tools.
However, a minor disadvantage of this strategy is that some of the traders’ massive success came from undertaking significant risks, and lowering the risk level may not bring about similar results.
Understanding Mirror Trading
Mirror trading entails the complete automation of the trading platform to the best trading practices in various markets. To utilize mirror trading, you must find a trading platform that powers fully automated trading strategies and evaluate different trading models available.
Afterward, you can choose the strategy that best suits your portfolio or your preference in terms of risks and asset classes and totally outsource the whole trading process to the platform.
Advantages of Mirror Trading
Mirror trading allows you to fully rely on the platform to trade for you, saving yourself time and nerves from exploring and executing market orders. This strategy is beneficial for new traders or those who run various trades at the same time and do not have time to follow up with every order.
The only obvious disadvantage of this tactic is the full dependency on algorithms, which may not be successful every time.
Simply put, a strategy model that worked once may not work again, and algorithms may fail to identify complex market dynamics, especially if they happen after a distinguished financial event or news that drives markets in an unprecedented way.
Conclusion
Social, copy, and mirror trading are contemporary trading strategies that new traders follow to shortcut their road to success. Copy and mirror trading involves following a trader’s footsteps fully or partially, while social trading requires the trader to craft their own strategy after listening to advice and recommendations of investors in different communities.
