Social trading platforms have been around since 2010 but even so, financial markets were slow to embrace them. But as social media became a mainstay for most people, the comfort level with using social trading increased. Now, with cryptocurrencies in play, social trading is becoming more trendy. But what is social trading all about and how does decentralization come into play?
In the simplest of terms, social trading means that people can share trading ideas on web-based platforms. Individual traders of stocks, forex, and now cryptocurrencies no longer have to go through a brokerage or financial advisor to make trades. Now they can enter a social trading platform “peer to peer” and follow an expert and their trades, or even automatically copy that expert’s trades.
Social trading is unique in the world of finance for two main reasons:
- Traders with little or no market experience can make trades with confidence by copying more experienced traders (who have good success scores). While they trade alongside the pros, they can learn about analyzing charts and watching market trends. They don’t have to wait for a certain level of proficiency before actively participating in trades.
- On the flip side, experienced traders can share their knowledge and earn by selling access to their trade predictions. By using a social trading platform, they gain access to a new market of traders who purchase their predictions.
Social trading essentially gives newcomers to online investing access to real-time market data and expert traders. Additionally, instead of just accessing the advice of one broker, users see the data and success rates of many traders. They can see how these pros have done in the past and compare their track records.
These types of platforms are very helpful to newer investors who may not be able to tell good trade advice from bad. For expert traders, they have a new way to do business and the social trading platform represents a source of potential buyers.
Many other benefits to social trading platforms make them very appealing, especially to the incoming crypto crowd. For instance, copy trading saves time for everyone:
- Traders, who want to spend less time actively trading or want a break from the stresses of day trading.
- Newcomers, who don’t have to wait until they learn to trade, they can make trades and learn as they go.
Another positive aspect is the layer of transparency that’s added when using a social trading platform. That’s because traders who share their predictions have their success score, trade history and portfolio composition available on their profiles for all users to see. Social trading also opens up new markets, for instance, a stock trader can now easily access Asian markets because of the global reach of social trading platforms.
For newcomers just joining a social platform, there’s usually a demo available for them to try. Some platforms will issue $1000 or even $10,000 of virtual (fake) money to invest. This gives them a feel for how the whole system works before they go “live”.
As individuals are ready to use real money and make some trades, they can transition by copying the trades of experts. Once they’ve gained more experience, they can venture out on their own, but still within their social trading platform.
Pro traders get an additional source of revenue, which is dependent upon their success. They also can build a community of followers (or subscribers). People who subscribe to these traders’ predictions can leave comments and feedback, and online traders don’t necessarily have to work in isolation.
Social trading is “social” in the sense that you have peer to peer interactions online between traders of differing levels of experience. You can have many of these interactions without ever needing a middleman or broker. All in all, the system is beneficial to all participants.
Up to now, everything has sounded great. What could go wrong? Well, there are certain limitations to social trading as we know it today. These inadequacies are solved with a decentralized social trading platform like HedgeTrade.
Some of the inherent problems with social trading today include:
- Lack of trust. Yes, the trader’s profile lists their history and success percentage. But when they are wrong there is no true system of accountability. Now there are hundreds (if not thousands) of social outlets where you can copy trade. If you copy a trade and it goes bad, you have no recourse, you simply take the loss, after having paid for the prediction.
- The fees vary widely and can be confusing to a novice. Often platforms base their fees on spread depending on the coin.
- Withdrawal fees can be significant when you want to take money out of the platform.
- If you’re dealing solely with traditional social trading platforms, you may not have access to crypto trade information.
- Banks hold the platform’s funds. Since banks are centralized points of failure, they do not have the enhanced security for your digital assets.
- Lastly, social trading platforms usually set minimum deposit amounts and trade minimums. In fact, some platforms requiring a minimum of $1000 or more just to start trading.
Decentralized projects like HedgeTrade are built using distributed ledger technology. Some of the most appealing features of blockchain tech for financial markets include:
- Full transparency – transactional information (not personal data) is openly viewable on the blockchain, giving all participants real-time financial data.
- Smart contracts – these automated contracts running via blockchain technology make sure promises are kept, helping to maintain accountability in the trade predictions market.
- Secure – because blockchains are built on globally distributed ledgers, there is no single point of failure. This means a hacker cannot easily manipulate the financial data, whereas when a bank holds the assets of thousands of people in one centralized system, they create a target for hackers.
- Cheap transactions – transactions on blockchain are inexpensive, plus you have no need for 3rd parties that charge fees along the way.
Built by traders, for traders, HedgeTrade offers the perfect solution to the woes of modern social trading. With an intuitive platform for traders of all levels, they’ve created a predictive market that eliminates the negative issues found on social trading networks.
- Expert traders only get paid when their predictions are correct. If incorrect, the money (HEDG tokens) go back to the purchasers.
- HedgeTrade’s incentivization model ensures high-quality trade predictions. Experienced traders can stake additional HEDG tokens to earn more if they are correct. This shows subscribers that they are willing to pay to back up their claims.
- Best UI – Because creative traders are behind this project, you have a uniquely designed platform that is easy to use no matter your level of expertise.
- No money needed up front – You don’t have to pay $1000 to start browsing and buying trade predictions.
- Market data – Real market time data from multiple feeds within the platform and beyond is now available to every trader.
- Security – Built on the blockchain, HedgeTrade presents the first decentralized social trading platform, eliminating the central point of failure threat and dependence on slower, more expensive, third parties.
HedgeTrade has revamped the meaning of social trading. They’ve done it by creating a tokenized trading application where accountability is king and the thousands of new crypto traders have a safe place to land. Join us today!
Also published on Medium.