Copy Trading vs Social Trading: Which One Is the Best Option for You?
Learning to trade Forex and navigating its intricacies is easier than ever, thanks to all the resources available online. You just need to ensure that your source of information is credible and reliable.
Well, there are two forms of trading that will help you weed out the bad sources from the good--copy trading and social trading. Both can also help you profit from your trades without doing all the hard work such as performing fundamental and technical analysis – unless you’re a signal/strategy provider.
In this article, we'll look further into the differences between the two. And, for your reference, here's a list of related blogs we've previously published:
- What You Need to Know about Copy Trading
- Copy Trading 101: How to Choose the Best Trader to Copy
- Top 3 Features of the Best Copy Trading Platform for You
- Social Trading: What You Need to Know and How to Benefit from It
For a list of the pros and cons of both copy trading and social trading, check out Forex Trading: Manual Trading vs Copy Trading.
How is copy trading different from social trading?
There are differences between the two even when some people use both terms interchangeably and both forms of trading share the same basis. To put things into perspective, social trading is a broader term that includes copy trading.
About copy trading
There are two main players of copy trading--signal/strategy provider (SP) and signal/strategy follower (SF).
While copy trading is considered a type of social trading, it's stricter and more limiting in the sense that it binds your account with that of another trader (at least a percentage of it). On the SF's end, trades are opened or closed automatically. The SP’s loss or profit will be reflected on an SF’s account.
About social trading
Social trading, on the other hand, works similarly to social media. You simply follow other traders to gain real-time insights from them. Instead of selfies, traders post strategies, tips, and ideas that followers can choose to replicate.
There is no need to link your account with that of traders you follow or replicate their trades automatically. This gives you more autonomy with trade execution. Your loss or profit is not a direct reflection of the action or trading decisions of other traders either.
Depending on the social trading platform, a social trader not only follows and connects with a trader or a community of traders and investors but also executes trades. You have the option to copy a trader's suggestion and make money should you close on a winning position.
On both copy trading and social trading platforms, you're going to see different information on different traders.
- Profit rate
- Risk score
- Commission, etc.
Given these data, you can decide wisely which trader to follow.
Which trading option is best for you?
Copy trading is best for:
- New investors or traders who want to learn the fundamentals of Forex trading by copying other traders while earning money at the same time.
- Traders and investors with little to no time to trade, which makes automated trading the more suitable option for them.
- Professional and expert traders who want to earn by allowing other traders to copy them and receive commissions, rebates, or performance fees. The payment structure will depend on the broker.
- Traders who tend to trade emotionally, resulting in poor trading decisions. Copy-trading allows them to hand over their portfolio and its management to a top or professional trader.
Social trading is best for:
- New investors or traders who want to learn the basics of trading without risking their accounts. They gain knowledge and confidence by following other traders and learning from the insights shared.
- Traders who trade as a hobby and whose primary goal is to engage with other traders and investors. Earning is just secondary. This means they'll be happy with just small profits.
- Traders who want to identify market sentiments and trends rather than focus on analysing the technical aspects of trading.
- Professional and expert traders who want to grow their following as a means to boost their authority, credibility, and expertise on trading, and then earn from their followers.
The type of trader you identify with will help you choose between the two trading options.
How do you choose between copy trading and social trading?
If you're serious about Forex trading, social trading gives you the platform to learn from other traders and make independent trading decisions. This will help you gain confidence and boost your trading skills over time.
If you just want to earn on autopilot without doing a lot of work, go for copy trading. This is not to say that you're not serious if you just replicate other traders, but you do get a bit of wiggle room with copy trading.
Between the two, however, copy trading is better overall. You can skip the time and effort needed to study the charts, analyse your next move, monitor economic news, and trade manually when you copy other traders.
If you're to calculate the returns of the money, energy, and time you invested in trading, you're likely to gain more with automated trading via copy trading.
The choice to go for copy trading or social trading is entirely up to you. With enough information, you can make a smart decision. You don't even have to choose between the two if you can afford to engage with both. The goal is to make the right choice and earn a profit.
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