How Does Social Trading Work? (2024)

If you are new to investing and you’re looking for new trading strategies, it can be hard to know where to start. There are so many methods and strategies that it can be a bit overwhelming when starting out investing.

One easy way of remedying inexperience when starting out is by social trading. Social trading is great for budding traders and for seasoned professionals alike.

Social trading is a popular trading strategy which you can use to grow your trading portfolio. But what is it and how is it different from copy trading? In this article, we explore what social trading is, what it does and what platforms you can use to social trade.

What is social trading?

Social trading involves bringing social media into the trading world, by using message boards, social networks and notifications to collaborate on trading ideas. Some online brokers even incorporate social trading onto their platforms allowing you to collaborate with others when making your investment decisions.

You can use social trading to learn new ideas and strategies to help you invest in stocks, commodities, forex and cryptocurrencies. To do this, all you have to do is search for a trader online who has a strategy, portfolio and trading history which you prefer and with one click, your profile will copy their trade for trade.

• Social trading is a new innovative strategy which has been made possible due to the accessibility of trading data thanks to the internet.
• You can choose how much you want to copy with other traders, allowing you to still be independent.
• Social trading and copy trading are legal in Canada and are considered self-directed trading because you choose who you mirror. 

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Pros and cons of social trading

Does social trading work? It’s a reasonable question to ask, especially if you are new to investing.

In short, social trading is a form of copy trading. Copy trading is when you find a trader whose profile you like and then automate your portfolio to copy their moves. This is also sometimes called mirror trading.

The advantage of social trading is that it is a great opportunity when you are learning the basics of investing. You can determine how involved you are with trading directly vs how automated you want to be and, of course, if you play your cards right, you can make a healthy return on your investment.

Social trading vs copy trading

How are social trading and copy trading different? Copy trading and social trading are quite similar in the broader aspects, but as always, the devil is in the details.

Copy trading is focused on finding a more experienced investor to choose to copy, allowing you to automate your trades. This way, you don’t have to be looking at your portfolio all the time. However, if the trader you copy loses money, so do you.

Social trading meanwhile is a broader strategy which incorporates social media such as discord and notifications showing your fellow trader’s choices. Social trading is less automated. It brings together a variety of trading types including the following.

• Forex
• CFDs
• Stocks
• ETFs
• Stock indexes
• Commodities
• Cryptocurrencies

Instead of copying one singular trader and automating your traders — traders work together to pool their knowledge and share their tips with each other through social media platforms. The social aspect and its collaborative nature are why social trading is the name of the game here.

On a strictly technical level, copy trading is automating your investment entirely by copying an experienced trader. Social trading does not involve as much mirroring and is not automated and instead relies more on collaboration.

Social trading vs traditional trading

What’s the main difference between social trading and traditional trading?

The main difference between social trading and conventional trading is that trading socially is a more collaborative effort. With social trading, you never trade alone. With traditional trading, it's common to feel like you are an island unto yourself.

Social trading is for people who want to work together. It's a style that suits part-time home traders who want to learn collective knowledge and skills regarding trading. If you are still new to trading, social trading may be the right option for you.

How to do social trading?

In order to social trade, it's important to first join a platform which allows social trading to occur. While social trading is popular, not every trading platform allows social trading. Here are the steps for getting started.

1. Select the social trading platform that suits your needs and expectations. It's important to know that not all trading platforms offer the same social trading experience.
2. Open a trading account. You choose a demo start if you’re not feeling comfortable starting with a full account. You need to cover the minimum initial deposit, which varies by platform.
3. Choose one or more traders to follow. For this step, you have to sort through the different traders on the platform. Don’t rush this part, research the traders by their performance, the number of people copying, risk score and assets.
4. Set up your social trading strategy. Whatever strategy you choose, be it the use of signals, mirror trading or copy trading, it's important to configure your account according to your needs.

Not sure which broker is right for you?

What is the best social trading platform?

What are the best platforms for social trading?

Copytrading isn’t yet explicitly supported by many platforms in Canada, but can be done manually through any of Canada’s best brokers or through software like MetaTrader 4 and 5 if supported by a broker.

Worldwide, here are some top options:

• AvaTrade: Offers great educational programs for new traders wanting to social and copy trade, with three types of social trading programs to choose from based on your interests and style.
• Exness: A popular Cyprus-based CFD platform that supports social trading. Unfortunately, it doesn't allow Canadian residents.
• FXCM: Offers ZuluTrade social trading and educational tutorials.
• FPMarkets: Provides a simple and easy-to-use copy trading interface for new traders.
• Naga: Offers Naga Autocopy, along with a variety of educational information.
• Pepperstone: Partnered with DupliTrade to help you get the most out of your social trading.
• Questrade: A Canadian-owned independent brokerage.

Social trading is a great tool for humble beginners and professional traders alike. It gives you the tools of copy trading with a broader means of collaborating with other traders, making it a great way to make money while investing as a new trader or learning new strategies and techniques if you work as a trader full-time.

Many of these platforms offer educational materials on how to social trade. Take a look at which ones are right for now.

How do I choose a social trading platform?

While social trading and copy trading are legal and available in Canada, it can be hard when just starting out to figure out which social trading platform is right for you.

To choose a social trading platform consider the following:

• Is it available where I live?
• Does it offer robust trading and investment services?
• Does it have the financial instruments I want to trade?
• Does it support my favourite software?

Perhaps you want to find the best social forex trading platform. Or you’ve heard of the platform Exness and want to become an Exness social trading investor. Or, may you just want to find the best social trading platform overall. The truth is that no one platform is perfect for everyone.

What are trading signals?

Trading signals are notifications giving you advice on what to trade and when. These are usually provided by the platform which you sign up with for social trading.

Typically, these can be based on the market and provided by the platform, but you can create your own trading signals usually on the platform you are trading on.

While trading signals are an important part of social trading, there is always a chance that they can come with a risk, so it's important to use your best judgment when it comes to trading signals.

Is social trading regulated?

In Canada, social trading is considered by Canadian regulators as self-directed trading. Self-directed trading is essentially trading that you do yourself. At the end of the day, you're the one choosing who you mirror/copy from.

Is social trading safe?

Social trading is safe but it is not free from any risks. The whole point of social trading is copying the moves of a trader which you find to be appealing. If the trader which you copy makes risky decisions which cost them money, you will likely lose your investments as well.

It’s really important that the trader which you copy is skilled. If you want to social trade, consider researching who you plan to copy from. Once you feel like you have found someone right for you, social trading will help you learn the ropes!

What other types of trading are there?

There are many strategies when it comes to trading. Some people prefer to day trade with a platform, buying and selling on the margins. Others prefer longer-term strategies such as investing with a robo-advisor or an index fund.

There are many types of trading which you can use to practice social trading.

• The use of trading signals: Trading signals give you notifications on stocks, bonds, crypto and other financial instruments you want to trade with. You can have notifications come to your phone, email or message board.
• Copy trading: Directly automate your trades today by finding a trader to automate from. Great for beginners.
• Mirror trading: Similar to copy trading, mirror trading involves mirroring other experienced traders move for move.

Ready to start trading?

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Alexandre Desoutter

Alexandre Desoutter has been working as editor-in-chief and head of press relations at HelloSafe since June 2020. A graduate of Sciences Po Grenoble, he worked as a journalist for several years in French media, and continues to collaborate as a as a contributor to several publications.