Social trading is the process through which online investors rely on user generated financial content gathered from various Web 2.0 applications as the major information source for making financial decisions. Social trading introduces a new way of analyzing financial data by providing a ground to compare and copy trades, techniques and strategies. Prior to the advent of social trading, investors and traders were relying on fundamental or technical analysis to form their investment decisions. Using social trading investors and traders could integrate into their investment decision-process social indicators from trading data-feeds of other traders. These social trading networks can be considered a subcategory of online social networks.
Social trading allows traders to trade online with the help of others and some have claimed shortens the learning curve from novice to experienced Forex trader. Traders can interact with others, watch others take trades, then duplicate their trades and learn what prompted the top performer to take a trade in the first place. By copying trades, traders can learn which strategies work and which do not work.
Despite the influx of new social trading platforms in the early 2010s, numbers still continued to increase as brokers see them as new growth engines for converting new and retaining old clients. Social trading has increased participation in the market and led to a greater volume of trades going through.
Information Flow - Social trading involves the free flow of information between individual financial investors. Unencumbered access to information is held to be of premium importance in financial trading and that makes the free exchange of information of interest to small scale as well as individual investors.
Cooperative Trading - Social trading offers traders the opportunity to work together in trading teams which can trade the markets collaboratively, whether by pooling funds, dividing research or through sharing information.
Monetization - As with social networks in the broader sense, the monetization strategies are not always clear. At launch, Currensee’s sole recorded revenue source was an introducing brokers deal it negotiated with AvaFX (now known as AvaTrade). As with social networks in general, it is possible, however, that the long-term worth of such websites may come from the variety and depth of data about their users which their active communities are likely to generate.
Transparency - Social trading platforms like eToro or investFeed reveal traders' performance stats, open and past positions, and market sentiment, giving members complete information to assess the credibility of the contributors they follow on the platform.
Social Trading Fraud
Social trading scams are popular in developing countries like India.
Speak Asia one of the social trading scam was held and stopped in 2011 when its promoter Ram Sumiran Pal was arrested in Delhi, India for 2200 Crore.
In early 2017, Uttar Pradesh police revealed another internet scam caused around 650,000 people to lose a combined Rs 3700 crore after sending money to a company that promised they would earn cash by clicking on web links. The company operated numerous websites (socialtrade.biz, web-work.in, and others) that were constantly changed under the claim of normal business and brand updates. Police described the pyramid-style scheme as one of country's biggest ever, said they had arrested three ringleaders on the outskirts of New Delhi and seized more than Rs 500 crore from bank accounts.
By Webwork, Anurag Garg and Sandesh Verma grabbed Rs 260 crore from public in just four months in a scheme which had no revenue other than the investors' money.
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