COPYCAT INVESTING: Social Media Is Revolutionising The Way Traders Make Money

Getty/Peter Macdiarmid

Have you ever been in a casino playing Black Jack, and someone leans across and places a bet on your hand?

It’s a disconcerting feeling, but sometimes it feels kind of good that there is another player out there who thinks enough of your style that they will place their trust in you.

This concept of piggy backing on other people’s trading has been growing in retail foreign exchange and other retail trading platforms since the inception of the eToro network in the UK in 2007.

eToro styles itself as the “world’s leading social investment network”, and with it you can supposedly tap into the wisdom of the crowds to help you make smarter investment decisions.

It’s website says there has been 113,332,066 positions opened on its network, and it looks like it is increasing at a rapid rate each day.

This is a phenomenon that has taken on even more attraction for traders since twitter has taken off. And there is an active community of traders in the twitterverse discussing trends and trades in markets.

Some professional strategists and traders like Peter Esho of Invast Securities and Chris Weston from IG markets do it both as part of their role with their respective firms, and also because the trading community just loves to discuss and share ideas. Traders like Assad Tannous from Asenna Wealth are a great source of trading wisdom and ideas.

Others like Chris Becker, a private trader living in the hills behind the Sunshine coast, do it not only for the ideas and discussion, but also to break down the isolation which often comes with trading your own account.

Which brings us back to the explosion in social, copy, or mirror trading, as it’s sometimes called, which allows traders who have less experience (or success) to find others who have more experience, a longer track record or more success and copy their trades.

In many ways it’s an extension of following people on twitter, as traders follow or “copy” a trader’s actual trades.

That is, if the trader they are following buys Aussie dollars and sells yen, then the follower’s account can do the same in the ratio that they have set.

Just like Black Jack though, your money is resting on the decisions made by the player. And it is out of your hands until the the trade is closed – you either win, break even or lose.

But in a world where retail trading has become easily accessible on your desktop, copy trading on a tablet or mobile is a growing business that brokers and traders want to exploit to mutual gain.

Brokers get increased turnover. Those traders being followed get a small fee for the turnover their followers generate, and the follower hopes to get access to a trader who can generate return that they would not be able to generate themselves.

Brokers all over the world are getting into the business of copy trading. In Australia my broker, VantageFX (who I write a morning report for), runs FXCopy and I have a follower or two.

Sometimes, like January I can be up in the big double digit returns, but at others it can be a hairy ride because my account is a secondary consideration for me at the moment.

And while its in the black since inception, I concentrate on other things often — or simply don’t pay attention to the market, which leads to heavy percentage losses from time to time even though the dollar value is small as it’s a tiny account.

But that doesn’t mean social trading isn’t a way to democratise trading, and open the door for the future George Soroses of the world.

Indeed. this week the AFR ran a story on Saxo bank – one of the globes best known retail FX and other market brokers offering a copy service. They noted:

The new portal aims to bring investors together by publishing the trades of registered users, enabling them to build a track record and alerting their “followers” of new transactions in real time. The founders believe it may even help discover the trading superstars of tomorrow.

I prefer to trade my own account, and to make my own mistakes, but for a growing number of traders and brokers out there copy trading is the way of the future.

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