For many years, trading was an exclusive world, where investors would keep their insights to themselves, and outsiders couldn't hope to break through without help from finance experts. In 2021, trading is much more transparent and accessible. You don't need a finance degree to make successful investments, nor do you need a job in an industry-leading financial institution. You can be an affluent 65-year-old investor, but you can also be a part-time student who rides a bike. No matter where you live and what your background is, you now have access to information and you can start building your portfolio as soon as you get your first job.

One of the reasons why trading is so accessible is that it now has a social component to it. You may not be familiar with terms such as technical analysis, diversification, and risk management at first, but you can join a social trading network and get inspiration from more experienced investors. Trading may seem like a highly specialized activity, but at its core, it has the same need for recommendations and social proof. In the same way that you're asking your car enthusiast friend for car recommendations, you want an expert to validate your investing choices.

In the past, people would have to read newspapers and specialty magazines or look for a mentor to get trading insights. Now, all you need to do is join a platform where you can copy the strategies of other traders. It's one of the best things to ever have happened in the world of trading, but is it really a failsafe tool? Now always. To make the most of social trading (or copy trading, as it's also called), you have to use it with measure and develop critical thinking.

Advantages of social trading

A social trading network is similar to the social networks you already use, but instead of sharing photos of their travels and pets, users only share trading content and discuss market events. By joining a social trading network, you can copy another user's strategy, and that comes with several amazing benefits:

A world of information at your fingertips

Do you want to make money from trading but don't know where to start? No problem. You can look for Forex brokers with a social trading network and get inspiration from what experienced traders are doing. They say that the best way to learn is to watch experts at work, and this really applies here. A social trading network is one of the best places to familiarize yourself with trading concepts and strategies and see how they apply in real life. And the best part is that people who joined these networks love helping others and getting involved in the conversation. You won't feel bad about asking for extra explanations, and successful traders won't look down on you because they once were where you are now.

It gives you the boost you need so much.

Few things are more rewarding than seeing your trading strategy pay off. Unfortunately, when you're a solo trader it may take years to figure out the right strategy, and you may have to lose a lot at first. With social trading, you can somehow jumpstart this process. Of course, winnings will never be 100% guaranteed because the success of your trades can be influenced by dozens of factors. Still, you'll see results faster than trading by yourself, which can motivate you to learn and keep trying.

Learn while you earn

Although trading platforms have demo accounts, and these demo accounts have their perks, they're not the same as the real thing, and they don't prepare traders for real market conditions. Meanwhile, social trading platforms create an opportunity to earn and learn at the same time. Of course, you won't learn everything just from watching one person trade, and you'll have to devote yourself to continuous learning if you want to boost profit, but it's a great start. Plus, you don't have to wait until you read all there is to read about investments and finance to start putting it into practice. You can copy another trader's strategy and learn at the same time.

Become a part of the community

Although the media loves praising affluent investors who made it on their own, the truth is that such cases are rare. Most of the time, successful traders had a mentor and a community who supported them. Few people are lucky enough to know affluent investors in real life but, thanks to social trading networks, you can meet a community of like-minded people that you can learn from. This way, you'll have someone to bounce ideas off of, ask about the latest trends, and fact-check things you hear about in the news. This reduces uncertainty and turns trading into a more enjoyable experience.

Possible downsides to keep in mind

Social trading networks have many benefits, but they're not the universal key to success. Sometimes, they can end up losing you money, if you don't know how to use them.

Overconfidence

Trading has a psychological component to it, and overconfidence is one of the flaws that can end up costing you money. Overconfidence creates an illusion of control over the market, when in reality anything can happen. Normally, you have to put a lot of thought into your trades, but if you copy what others are doing all the time and win from their strategies, that can give you a false sense of security and unrealistic expectations.

Outcomes may differ

When you're copying another trader's strategy, you may not know what their financial situation is or what their portfolio looks like. They may have another level of risk, or their investment portfolio may be more diversified. For example, you may be copying a high-risk strategy without knowing, and you may end up losing a lot of money. To avoid this, only copy strategies that match your desired risk level and accept the possibility that the outcome may be different in your case.