Social trading is a concept that has gained popularity in the crypto space, as it allows traders to share, follow, and copy the trading strategies and actions of other experienced and successful traders. It aims to leverage collective learning and knowledge for better trading results.
In the crypto market, social trading platforms create networks for traders, bringing together beginners and experts. By copying trades and strategies from expert traders, less experienced traders benefit from the expert crypto traders. At the same time, this gives skilled traders the chance to monetise their expertise.
What Is Social Trading In Crypto?
Social trading in crypto is the practice of using social networks and platforms to access, share, and exchange information, opinions, and trading strategies related to the crypto market.
Social trading platforms work around an online community consisting of two main groups. The first one is dedicated to strategy providers who share their portfolios, asset selections, and transactions. The second belongs to the investors or followers who consume this information to copy trades from strategy providers or expert traders.
Platforms provide a vibrant place for traders of all levels to connect and learn. Experienced traders can share their expertise in charting and fundamental analysis to showcase their portfolios and decision-making processes.
Beginners benefit from the knowledge, valuable insights, metrics and market perspectives. It also offers the option to automatically copy all trades or specific ones that resonate with their strategies. This, in turn, provides income opportunities for expert traders through copied trades or subscription fees.
How Social Trading Works
Social trading works by connecting traders through social trading platforms and networks, where they can interact, communicate, and collaborate. Social trading involves the following steps:
Joining Social Trading Platforms
The first step of social trading is to sign up and join a social trading platform. There are many different types of platforms for social trading, like volume-based platforms, fee-based platforms, and hybrid platforms.
You can choose a reliable platform that has low fees and transaction costs and a user-friendly user interface. Some social trading platforms like Zulutrade may also require a minimum deposit or a joining fee, depending upon the broker.
Observing And Learning From Peers
Once registered, observe and learn from resident traders using the social trading platform.
You can browse top-ranked professionals’ performance and history by checking traders’ profiles and statistics like their total profit/loss, winning percentage, copiers or followers and total trades. By checking all these data, you can understand the analytical process and risk management of various assets.
Interaction With Peers
You can use the social trading platform to communicate and collaborate with other users and traders. You can also give and receive feedback, ratings, and reviews and share your opinions, insights, and experiences. Moreover, you can also participate in discussions and chats about cryptocurrency market trends and analysis.
Copying Trades Of Experienced Traders
Once you’re familiar with the concepts, you can use the social trading platform to select and copy the trades of other users, traders, or strategies. You can choose to copy the trades automatically or manually and adjust the amount, frequency, and duration.
Monitoring Performance
Monitor the performance of the copy trades. You can track and analyse their performance and profitability, as well as the performance of other traders that you follow or copy.
Your chosen social trading platform will give detailed reporting on trades, closed positions, portfolio metrics, and profit/loss. This keeps you updated on how your capital is performing under the expert trader’s strategy.
Managing Risk In Social Trading
The final step in crypto social trading is to manage risk in social trading. You can control and mitigate the risks and challenges associated with social trading. This includes loss limits on copied portfolios, stop-loss, take-profit, diversification, and risk-reward ratio to optimise your social trading risk management.
Types Of Crypto Social Trading Platforms
While fundamentals are similar across platforms, monetisation models are different in various platforms. These models determine how platforms generate revenue and reward users, traders, strategies, and signals.
The main types of crypto social trading platforms are volume-based platforms, fee-based platforms, subscription-based platforms, and hybrid models.
Volume-based Platforms
Volume-based platforms are crypto social trading platforms that generate revenue and compensate their users, traders, and strategies based on the volume of trades.
Two examples of volume-based platforms are eToro and ZuluTrade. These platforms don’t charge any fees for copying trades. Instead, they receive compensation from the bid-ask spread—the difference between the bid and ask prices of a crypto asset.
Fee-based Platforms
Fee-based platforms charge a small fee as their business model. The most common way of doing this is by charging a fixed or variable fee for each trade on the platform and sharing a portion of it with the users, traders, and strategies in the trade.
For example, NAGA is a fee-based platform for crypto social trading and charges $0.99 per trade and a 5% commission on profitable trades above $10. This shows that NAGA is not suitable for traders and investors with limited budgets.
Subscription-based Platforms
Here, the platform charges users a monthly fee to access features, alerts, risk tools, and copy trading opportunities. Users directly pay fixed recurring fees, often monthly. In return, users are not charged any fee to copy trades.
For instance, Coinmatics and Collective2 are examples of subscription-based copy trading platforms. Coinmatics charges from $0 to $30 per month to copy experts, and you can copy multiple strategies. Meanwhile, Collective 2 allows experts to decide how much they want to charge for their strategies.
Hybrid Models
A hybrid model of crypto social trading platforms combines two or more of the above types of platforms and generates revenue based on a mix of volume, fees, and subscriptions.
An example of this model is Tradelize, a new social trading platform. Unlike other subscription-based services or fee-based models, they offer a free plan for the basic features. However, professional and institutional customers pay extra charges for using advanced features.
Benefits Of Social Trading
Social trading offers many benefits to users who want to trade in the crypto market, such as market insights, learning from experienced traders, diversification, and risk management.
Access To Market Insights
One of the core advantages of social trading is that it provides you with access to trading insights, analysis and education from successful crypto asset traders in the community. You can use the social trading platform to access information and data related to the cryptocurrency market, such as charts, news, analysis, and opinions.
Learning From Experienced Traders
Watching and interacting with veterans provides exposure to proven crypto and web3 strategies. Observing how expert traders apply technical indicators, evaluate on-chain data and conduct token analysis gives access to expertise that new users or traders cannot develop.
Reduced Learning Curve For Novice Traders
Following the experts through copy trading allows newcomers to avoid analytical and execution errors in crypto markets. This saves costly trial-and-error trade as experienced traders make decisions on your behalf.
Increased Diversification
Following the multiple traders focused on different asset classes naturally diversifies one’s exposure. This contrasts with new traders likely buying the most popular coins only. Diversification can reduce your risk exposure and increase the profit potential of the portfolio.
Automatic Trade Replication
Social trading enables automatic trade replication, which is the feature that executes the trades automatically based on predefined rules, criteria, or algorithms. You can replicate the trades of experienced traders either partially or fully using various tools and features of social trading platforms.
Enhanced Risk Management
In social trading, you can manage your risk using tools and techniques such as stop-loss, take-profit, position size, leverage, diversification, or hedging. Furthermore, through research, evaluating trading goals, and using different strategies, risk can easily be reduced.
Potential For Higher Returns
Social trading allows you to achieve higher returns by copying the trades of experienced traders, who can generate consistent income from the market. In other words, the combined knowledge of multiple veteran traders can generate higher profits than individual decision-makers.
Community Support And Engagement
Modern social platforms also provide discussion channels for interactions, communications, and collaborations among traders. Comment sections, forums, and social interactions within platforms enable a diverse community of traders.
This community empowers collective learning through knowledge sharing and provides feedback and support on the crypto market and trading.
Comparison: Social Trading vs. Copy Trading
Social trading and copy trading are two related concepts but are different in the crypto space, which can often confuse traders.
Copy trading is a type of online trading that allows users to automatically copy the trades of other users and traders without the need for manual intervention. In short, you copy someone’s trading in real-time rather than manually repeat their decisions separately.
For example, if the trader buys Bitcoin, the copy trader account will do the same. If they sell their Bitcoin, you do the same. This all is done automatically without any interaction from you.
On the other hand, social trading is a type of trading in which you can observe expert traders and choose any specific trade or all their trades to copy. For example, if the trader has two trades, one for Bitcoin and the other for Ethereum. If you want, you can choose to copy only the Bitcoin trade.
The differences between social trading and copy trading are as follows:
Basis of Distinction | Social Trading | Copy Trading |
Scope and Scale | More comprehensive | A narrower and more specific concept |
Time Investment | Moderate | Low |
Purpose | To learn from experienced traders and access market insights, trading skills and strategies. | To replicate the trading performance and results of experienced traders |
Best For Traders | Beginner and intermediate traders | Beginners |
Advantages | Learn from experts | Avoid newcomers mistakes |
Pros And Cons Of Social Trading
Social trading has some pros and cons, such as
Pros of Social Trading:
- Social trading is more comprehensive and flexible as it provides users with experienced traders, offering expert and professional advice and guidance on the market.
- It allows you to learn from and improve your trading abilities and strategies.
- It reduces the learning curve for newbie traders in the crypto market.
- It also provides advanced and reliable trading tools and features, effectively automating trade execution and management.
- It increases the diversification and enhances the risk management of your trading activities, which gives higher returns than traditional trading.
Cons of Social Trading:
- Social trading is complex and confusing, as it has different types of features, functions, and fees, which can be difficult to understand and use.
- It required more time and effort from the users to communicate and collaborate with other users, traders, and signals.
- It depends on the expertise and performance of other users and traders, which may not be consistent or reliable.
Pros And Cons Of Copy Trading
Copy trading has the following pros and cons, such as
Pros of Copy Trading:
- It allows you to automatically copy the trades of traders, strategies or signals without any manual intervention.
- It avoids the newcomers’ mistakes as the new traders have to copy trades from experienced traders.
- It saves time and effort for the users to learn the technical and fundamentals of trading.
Cons of Copy Trading:
- It does not provide any information, data or feedback related to the crypto market.
- It relies on the expertise, performance and trustworthiness of other traders, strategies or signals, which may not be reliable.
- It offers limited access and control to your own trading decisions and actions.
Popular Social Trading Platforms In Crypto
Many social trading platforms in crypto offer different features, functions, and benefits to users who want to trade in the crypto market. Here are our picks for the best crypto social training platforms:
1. eToro
eToro is one of the most popular and well-known crypto social trading platforms, which offers crypto assets, as well as stocks, commodities, currencies, and indices. eToro allows you to copy the trades of other experienced traders or investors, and they earn a percentage of the spread from their copiers.
eToro also allows you to interact, communicate, collaborate, and access various information and services, such as traders, strategies, signals, analysis and research.
2. ZuluTrade
ZuluTrade is another leading social trading platform. They offer a variety of crypto assets, as well as forex, commodities, and indices. It allows you to follow and copy the trades of other users and traders who have proven track records and high performance. You can check other trader’s activities, which are ranked by performance.
3. NAGA Trader
NAGA is a social trading platform that combines copy trading with various other features. It offers a user-friendly interface and a diverse selection of trading instruments.
NAGA Trader offers high-quality and premium service, as it provides you with access to the best and most experienced traders who have proven their trading skills and results. However, NAGA has high fees, as they charge $0.99 per trade and a 5% commission on profitable trades above $10.
4. PrimeXBT Covesting
The PrimeXBT Covesting Copy-trading module allows you to browse different trading strategies of other traders and automatically copy their trading activity. PrimeXBT has various trading options, including cryptocurrency, global markets, copy trading, and PrimeXBT Turbo.
With the Covesting Copy-trading, you can achieve returns similar to those of leading traders on the platform. An experienced trader can earn up to 20% of all profits earned by the followers.
5. Nexo
Nexo is a crypto trading platform that acts as a gateway to DeFi crypto functions like staking, borrowing and lending. The exchange connects traders to 3,000+ order books of 10+ liquidity providers. Nexo Pro looks for the best price and the most efficient spot, futures, and margin order execution.
Nexo is primarily billed as a crypto-backed lending platform where asset holdings serve as collateral to draw fiat currency loans. The Nexo also provides interest-earning options for assets held in its custodial wallet.
6. Coinmatics
Coinmatics copy trading allows copying trades made by expert traders and trading bots. You also receive signals for trading from the verified strategies in the Coinmatics trading platform.
It follows a subscription-based copy trading model, which allows you to copy strategies from individual traders and investors. The Coinmatics platform also provides tracking and copying trades and an analytics dashboard. However, it has a limited number of listed traders from whom to copy.
7. KuCoin Social Trading
Kucoin is a cryptocurrency exchange which also offers social trading or copy trading features. It required third-party platforms like WunderTrading and 3Commas to copy trade from top traders. This trading platform supports more than 700 crypto assets with a trading fee of 0.1% per trade.
You can buy, sell, and store cryptocurrencies like Bitcoin, Ethereum, and several altcoins, and it also supports NFT and DeFi.
Considerations For Individuals Interested In Social Trading
Social trading is an exciting and innovative way of trading in the crypto market, but it comes with its challenges and risks. Before selecting platforms, individuals need to evaluate their requirements in a long-term strategy.
Thorough Research And Understanding
Crypto markets are, by nature, very volatile. You should extensively research how social trading platforms work, risks, historical returns, etc.
Evaluation Of Trading Goals And Risk Tolerance
Have a clear and realistic idea of what you want to achieve and how much you are willing to risk from social trading. You should not just follow or copy anyone who has a different style and risk profile than your own.
Choosing A Reliable Platform
Choose a reliable and reputable social trading platform that offers the features and functions you need in trading. You should also check the security, reliability, and reputation of the platform. Avoid any platforms that are fraudulent, scammy, or shady practices.
Starting Small And Gradual Investment
Start small and gradually invest your funds in social trading, and do not risk more than you can afford to lose. You should also experiment with different users, traders, strategies, and signals before committing to long-term or large-scale copying.
Diversification Strategies
Diversify your portfolios and strategies, and do not put all your eggs in one basket. You should follow and copy multiple users, traders and strategies with different styles and risk profiles. Allocate different amounts of funds to various trades and strategies to balance the risk-reward ratio.
Regular Monitoring Of Traders
You should also review and evaluate the traders based on various metrics and indicators, such as profit, loss, return and risk. You can change or cancel their copying if the traders do not meet their expectations or standards. Do not follow the set-it-and-forget-it method in the social trading system.
Realistic Expectations And Risk Management
In crypto or other investment products, past returns are not guaranteed for good returns in future. You should have realistic expectations and risk management when engaging in social trading.
Do not expect copy trading to get rich quickly or an easy scheme. Be prepared for the possibility of losing money or facing challenges, and do not let emotions or biases affect the trading decisions and actions.
Potential Risks And Challenges
Social trading can also involve some risks and challenges that can affect the performance and results of social trading. This can cause emotional and financial harm to the users. Here are some of the potential risks and challenges of social trading:
Market Volatility
Cryptocurrencies are among the most volatile tradable assets globally. Unpredictable price movements can liquidate copied trades rapidly. Market volatility can occur due to various factors such as supply and demand, news and events, sentiment and manipulation, which can influence cryptocurrency prices.
Reliance On Others’ Expertise
Blindly trusting experienced traders’ signals, strategies and decisions without understanding market dynamics can affect the social trading performance and results, which can lead to losses or damages to the users.
Lack of confidence, lack of research and understanding, or lack of control are the factors that can influence the decisions and behaviour of the users.
Limited Control In Social Trading
Social trading involves giving up some control of trading decisions and actions to other users and traders you are coping with or following. This can affect the social trading results and can cause losses.
Automatic trade, lack of information, or lack of modification are the factors that can influence the execution and management of the trades.
Trustworthiness Of Traders
Ensuring the credibility, reliability, and trading skills of the traders who are copied or followed can affect social trading performance. Fake or fraudulent profiles and misleading signals are some of the factors that can influence the quality of trading actions.
Over-reliance On Social Signals
Relying or trusting too much on the social signals or strategies in the crypto market that the experienced traders share can affect social trading performance. These trading signals and strategies cannot always give consistent returns and need monitoring.
Herd mentality, confirmation bias, and information overload can influence the perception and judgement of the users in social trading.
Emotional Bias
Emotional bias or feelings, such as fear, greed, hope, or regret, of oneself or others can also affect the portfolio performance in social trading. Market volatility, trading results, social signals, or personal factors can influence the decision and the behaviour of the users.
Security Risks
Protecting and securing the platform and users’ funds and data from attacks, such as hacking and scamming, is important. Hacking can lead to the complete loss of funds. Weak passwords, unreliable platforms and fraudulent actors can impact the safety and reliability of the funds and data, which can create distrust in social trading.
Lack of Customization Options
You may have limited options to customise your own trading experience and may have to compromise some of your trading criteria or standards. Automatic trade replication and limited control can influence the execution and management of the trades, which can create convenience and problems for social trading.
Regulatory Concerns
Social trading involves engaging in the crypto market, which is a relatively new and unregulated market. This may face various legal and regulatory issues and uncertainties in different jurisdictions and regions.
You should be aware of and comply with the laws and regulations of the countries and not engage in any unethical activities. Lack of licence, regulatory approvals, and government decisions can impact the crypto industry.
Technical Issues
Finally, technology dependencies inherently carry troubleshooting risks around platform bugs, connectivity failures, or mirrored transaction errors that could result in inaccurate duplicated trades.
You can have backup plans and solutions in case of any technical issues and problems and contact the support team of the social trading platform if needed.
Conclusion
Social trading platforms offer innovative opportunities to learn from and profit alongside experienced traders. However, you can start social trading after analysing your risk appetites, goals, and market conditions to maximise profits.
Moreover, you should focus more on learning and exploring different strategies and analyses. It is equally important to understand the changing regulations in various jurisdictions or regions and crypto tax that impact profitability. You can use KoinX, a crypto tax solution platform and get accurate tax reports based on your location. Join KoinX today to make your crypto tax easier.
