EA stands for “Expert Advisor” and is an additional program that runs alongside the metatrader4 (MT4) application. Social Trading essentially means that users can link up with other traders using the MT4 platform via an online brokerage company, so you can see what trades they are making, follow them and copy their trades directly into your account.
The social aspect of this arrangement also allows you to chat with other traders, share knowledge, provide support; ask questions; get ideas; help each other etc. You can also discuss strategies openly. Not all online brokers offer the functionality of social trading – only a select few do at present.
Social Trading has become very popular because it is becoming harder and harder for traders, even experienced ones, to create trading systems that make money in all market conditions. The problem is that the markets are increasingly moving towards high-frequency trading (HFT), where computers buy and sell automatically in fractions of a second. These models cannot be replicated using technical analysis or fundamental analysis.
Social trading in Singapore
In Singapore, social trading comes into its own because regulators consider forex a form of gambling. So if one wishes to have a managed account service – i.e., you want someone to manage your money for you, you can only do this via an EA on MT4. As such, many local traders have turned to social trading to make the most of their trading.
Key factors to consider when social trading
Here are a few vital points to bear in mind when considering social trading:
- You should always use a demo account to test any strategy you may be thinking of copying. You cannot guarantee that the same strategy will work for you, as past performance does not indicate future results.
- Always check the trader’s history and make sure they have been trading profitably in the past
- Make sure you fully understand the risks involved in copy trading. If the trader gets into trouble, your account could suffer too.
- Do not over-trade. Remember that you are copying somebody else’s trades, so trade similarly to them.
- Use Stop Loss and Take Profit levels to protect your account. Do not blindly follow the trader. Always use your judgement.
- Be prepared to lose money. The markets are volatile, and it is possible to lose money even when copying a successful trader
- Use a reputable broker who offers social trading facilities, as not all brokers do this.
The future of social trading
The popularity of social trading will continue to grow because traders are increasingly unable to create profitable strategies themselves. It will probably become more prevalent in Singapore if regulators do not ban forex outright, which seems unlikely at present.
As such, perhaps there may be an opportunity for local online brokers to enter this market space with their solutions based on offering a managed account service – i.e., you want somebody else to manage your money for you. However, even without this further development, the social trading models have proved their worth and are likely to continue to do so.
Social trading can become an integral part of the financial industry; it provides greater access and scope for all traders (especially retail traders) while also providing more choices that would increase competition among brokers. This creates a healthier ecosystem overall.
To summarise, here are the top tips for successful social trading. Always use a reputable broker who offers social trading facilities, as not all brokers do this. Know the risks involved in copy trading and do not overtrade. Use Stop Loss and Take Profit levels to protect your account. Be prepared to lose money, the markets are volatile, and it is possible to lose money even when copying a successful trader. As always, remember to use a forex trading demo account before risking any real money by contacting a reputable online broker from Saxo Bank.