Just like other forms of trades, CFD Trading requires the use of the right strategy in order to make the most out of this endeavor. Today we shall be sharing one strategy which you can consider when you create your trading plans.
Explaining Social Trading:
Social trading is a type of strategy that is related to copy trading. When we speak of social trading, you should understand that you will be utilizing the benefits of social networking that is intended for investors. With this strategy, traders who share the same interest is given an opportunity to monitor each others move and strategies and they could copy each others style to pave the way for a better trading performance. This social networking application is not just any other social media application. This is actually a trading platform but its set up is geared for social trading. One common characteristics of social trading platform is its ability to allow interaction among traders.
What is Copy Trading?
As mentioned earlier, copy trading is related to social trading. This also makes use of social trading applications but the only difference is that copy trading is used for short term trades. This type of trading is very suitable for newbie traders as it gives them the opportunity to learn from the pros. Once they have signed up to the social trading application via their brokers, they could have the chance to observe which markets are commonly picked by their fellow traders. They can also pick some of their brains and expertise by joining forums or even chatting with them. Copy trading is therefore a trading strategy where expert traders can peer counsel and mentor newbies.
Disadvantage of Copy Trading
Despite the advantage of being able to socialize and learn from the experts, copy trading also poses several risks. These risks are posted below
1. Many newbie traders
A famous cliche states that too much of something is bad enough. In the case of copy trading, several newbie traders penetrate social trading sites and this could be risky as the number of expert traders may be compromised. Obviously, if the number of newbies outrun the number of expert traders, even expert traders will no longer be able to accommodate all the traders who wish to learn from them.
2. The Black-Hat Technique
Because the web is a melting pot of traders who wish to interact with each other. Therefore, a trader may have the possibility to meet people who may be untrustworthy. Some of them may just wish to have a huge amount of followers to boost their rankings. Others may also claim that they are experts in a particular field but the truth is that they only gained much exposure to the market and to the trading society by copying techniques from pros.
3. Unrealistic Expectations
Since most of the trader coming from this platform may have gained success by copying the style of successful traders, your expectations may not be met entirely. This may happen because some advice may come from experiences and alone with no background on theories. Thus, this could lead to loss of capital.
Conclusion:
Though copy and social trading styles may be applicable in CFD Trading, experts advice a newbie trader to be careful towards choosing a mode trader and style as you may copy something that may harm your trades.