It wasn’t that long ago when investing was restricted to a limited group of people with the right knowledge and expertise, understanding how different markets, asset classes and complex financial products worked. Those that didn’t understand would simply pay dedicated professionals to invest for them, provided they had the resources to afford such services.
Millions of people were unable to access the traditional system until the fintechs that emerged over the past decade offered online trading platforms that eroded this exclusivity. Today, investing in financial markets is accessible to anyone with a vast number of players in the online trading space offering smooth onboarding, intuitive mobile apps, social media customer support channels, and the ability to trade small amounts of cash – or even fractional shares.
But ease of access is only the first step in giving more people the ability to manage their financial wellbeing. The tools are more easily available than ever before, but that doesn’t mean everyone knows how to use them properly and the data shows it.
In a 2010 study titled ‘Do Day Traders Rationally Learn About Their Ability’, researchers found that among all day traders surveyed, nearly 75% had quit within the first three years with the most drop outs occurring in the first year of trading. The major cause for people to stop trading was increasing losses as a result from poor planning and lack of research.
The experience for traders familiarising themselves with investing in financial markets has since improved significantly with the advent of social trading.
Social trading has levelled the playing field
Social media has changed the way we interact with the world. User-generated content dominates the web and there is a dedicated digital community for every possible interest ranging from mainstream to fringe, giving advice and ratings on everything imaginable.
Social trading essentially applies the dynamics of social media to investing, creating a connected community of investors sharing information about financial markets and trading. There are many online trading platforms that offer various forms of social trading - eToro, AvaTrade and Robin Hood to name a few – and they all work towards the same goal of providing novice traders the opportunity to leverage the expertise of more knowledgeable peers.
Instead of paying for an expensive portfolio-management service, newcomers can now simply tap into the experience and understanding of the wider trading community. It offers the ideal home for novice traders who are just starting on their investment journey, searching for ways to gain exposure to investment opportunities the easy and fast way.
There are however some drawbacks, especially when it comes to copy trading – a feature that allows investors simply to replicate the exact strategies and portfolios of successful traders.
While copy trading has lowered the barrier to entry for novice traders, it does so at the expense of expanding their own financial education and knowledge through experience. Novice traders simply follow experienced traders, without learning from the process to improve their own abilities to navigate financial markets. Much like preparing instant noodles doesn’t teach you how to cook, copying trades does very little for your trading skills.
But for those that do build up some experience by taking matters into their own hands, once they reach the turning point between novice and intermediate skills they are left to their own devices with few ways to improve their skills in an easy and accessible way. For the newly minted intermediate trader, this typically goes one of two ways: their skills stagnate, or they make too many costly mistakes and lose interest.
Online trading platform Pocket Trader solves this by using the power of social trading to build experience and knowledge, not as a shortcut to a dead-end street.
Using social trading to help traders lift their game
Their community is connected through meaningful engagement, analysing trading results together and discussing market situations in real-time. The goal is to help intermediate traders move beyond the basics of trading and really build out more advanced skills such as managing risk, performing technical analyses, and developing trade ideas.
With digital social dynamics in mind, the user experience at the centre of the platform. Switching between the social aspect and the actual trading is seamless, to make learning fast and taking decisive actions in rapidly moving markets as simple as possible.
Discussions take place on public messaging boards either related to a specific financial instrument or say a particular trading strategy. Users can pin charts to those conversations to discuss potential opportunities and learn how to fine tune trading strategies. Moving from chat to chart is instant, enabling ideas to be executed immediately.
Another social feature is that users can connect with other traders to keep up with their views of the market and opportunities they identify. Trades placed by those connections are embedded in the price charts, making it even more intuitive to learn how experienced traders make their pips as markets evolve.
The key difference between this form of social trading and copy trading, is that while experienced traders share ideas, advice and analyses, everyone still makes their own decisions. It’s up to each trader individually to fit the strategies discussed in line with their own goals, motivations, resources, and risk appetites.
Pocket Trader is a place to connect with a collaborative community of traders to help lift your game.