Best forex brokers for social trading

It was the company Tradency that was the first to develop and utilize the idea of social trading or mirror trading as a concept in the year 2004. Over time, more and more social and copy trading providers as well as social trading platforms came to light. Today, social trading is one of the fastest growing sectors within the forex trading world. Many users join social trading networks every day.

Social, or copy trading as it is often also referred to, utilizes social networking trading platforms to exchange, share, compare, and copy the trading strategies, financial information, trades, and more of other investors. Social trading gives both novice and experienced traders the opportunity to benefit from each others’ trading experience and strategies.

Social trading sites provide their users with a variety of community-based tools to share and further develop their knowledge in order to make more informed trading and investment decisions. Many social trading platforms further offer the ability to view other users’ portfolios and trading strategies, highlight top traders, and analyze their trading history, current trades, and performance. Participants can communicate on forums, ask questions, exchange insights and strategies, and create investment relationships.

As an example, the popular and almost iconic social trading and multi-asset brokerage firm eToro offers one of the most sophisticated social trading platforms. Their CopyTrader is a copy trading platform and online trading community that allows all individuals within the community to see what people or asset managers are trading in real time and what profits or losses they are making. These trading activities can be copied – hence the term “copy trading” – and applied to your own portfolio at the click of a button. This feature, and the fact that a huge eToro social trading community has already formed, has enabled the masses to trade and apply the strategies of other members of the community with simplicity and ease.

Social trading is a rapidly growing market that enables the sophisticated investor to participate in a network of like-minded traders.

Social trading networks offer high transparency and a simplified way to start trading. Most social trading platforms are easy to use and provide a lot of insights that allow users to make educated investment decisions.

Inexperienced or novice traders can learn from being active on the social trading platform, copy other traders, ask questions, read newsfeeds, and study all information available via the social network. Passive income can potentially be generated with very little effort and even without any previous experience in the markets or in trading itself. Of course, engaging in CFD trading should always be considered as a high risk investment where losses can exceed gains and sometimes even initial deposits.

However, risks can potentially be managed more effectively by following a diverse number of traders with smaller investments. There are many interesting and successful traders on social trading platforms with various trading strategies and risk levels to choose from.

For emotional investors or traders that do not usually follow through with their own set strategy, it can be especially beneficial to join a social trading network. It is often easier not having to make investment decisions by yourself but rather let someone else handle a stressful situation.

If you are already a successful or professional trader, you could take advantage of social trading platforms by allowing other traders to copy trade your own strategies. This way, you could potentially rake in higher profits by earning a percentage cut from the profits of your followers.

As always, a trader should make sure that the forex broker and social trading provider of choice is properly licensed and regulated. The best brokers are typically those that are registered with strong regulators and industry watchdogs such as the FCA (Financial Conduct Authority) in the United Kingdom, the ASIC (Australian Securities and Investments Commission) of Australia, or the CySEC (Cyprus Securities and Exchange Commission) of Cyprus.

What criteria need to be considered before choosing a Social Trading broker?

The best social trading platforms are offered by a selection of forex and CFD brokers that are regulated with at least one of the aforementioned regulators. These social trading brokers commonly offer their very own social trading platform like eToro. Alternatively, they have implemented a third-party plugin that can connect to a social trading platform via an MT4 bridge, which enables their clients to connect to a large social trading community. Popular social trading platforms that brokers have implemented include Zulu Trade, Myfxbook AutoTrade, Trade360, and Mirror Trader.

Trading Platform

The functionalities and capabilities of a trading platform are always important when it comes to trading, and it is no different in copy-trading. Copy-traders should make sure that the trading platform offers all the features they are looking for.

Available Financial Instruments

The variety of assets offered by brokers is another vital consideration when choosing a social trading broker. More assets available for trading means more opportunities in the markets.

Commission Structure

All brokers have different commission structures in terms of what popular investors earn. ZuluTrade, for example, offers a fixed commission to its copied traders of 0.5 pips per lot R/T (traders with U.S. followers are recompensed by a variable monthly membership fee instead). This translates into a $5 commission per follower per traded lot.

Investors should be aware that different commission structures could affect the way how copied traders manage their portfolios.

Spreads and Costs

Brokers specialised in social trading typically charge a higher commission or apply higher spread mark-ups on trades than other online retail brokers. Both copy-traders and those being copied should make sure what the trading costs, spreads and fees are as they can vary quite a bit.

Transparency

Another primary criterion on which social trading platforms differ dramatically is the amount of information they give about each trader.

It is rare, for example, for social trading platforms to display a user's entire trade-by-trade trading history. This, of course, makes sense since we would be dealing with pages and pages worth of data. Past data typically get agglomerated into particular statistics. These charts and graphs can give each investor some decent insight into a trader's past performance. Investors should look for a detailed portfolio breakdown, which shows what financial instruments the trader invests in and how diversified their portfolio is. Some of the leading social trading brokers also provide a risk score to reflect the traders' strategic risk levels.

The eToro platform, as one of the largest social trading brokers, offers a large selection of financial instruments including forex, cryptocurrencies, commodities, shares, and the option to copy the best traders, trading styles, or even whole portfolios with their unique CopyPortfolios option. eToro is regulated by CySEC and allows forex traders to open a live or demo account.

eToro is an STP/NDD (straight-through processing/no dealing desk) broker that is licensed and regulated by the FCA and CySEC. The social trading specialist does not charge any fees or commissions. Copy trading does also not incur any additional fees. Spread mark-ups are applied instead with spreads starting from 2.0 pips (depending on the underlying asset). eToro guarantees that spreads remain the same, regardless of whether you are trading manually or if you are copying another trader.