You may be sharing a picture of your lunch, your cat or your kid’s cute face on social media, but if you are not on the Social Trading wagon yet, you should check your barometer for your FoMO and start using social media for a lot more than keeping up with your friend’s gossip. Social Trading is here to stay and we want to help you create a copying strategy that will help you reap the benefits of combining social media and investments.
First off, have you heard of social trading? In case you haven’t here’s the gist of it. Social Trading is an online platform in which retail traders are able to share investment tips and/or copy the strategies of top-rated peers. In addition to copying strategies from successful traders, social trading provides a huge pool of crowdsourced information from traders around the globe. A trader in Europe may have great knowledge about G10 currencies and share that information with a trader in China who knows a lot about Chinese consumer stocks.
If you are a trader getting started or you are looking to invest in a new instrument, copying could prove a very successful strategy, but how do you find the right master? It could be much like sitting next to the smart girl during the chemistry exam. Here are some of the things you should be looking at when looking for a master to copy:
Trading Instruments: Find a trader who trades instruments you are familiar with or interested in.
Risk: Find a trader that matches your risk-taking behavior
P&L and Maximum Drawdown: This is the best way to determine if a trader is worth copying. Is he making money? The P&L tells you the value of a portfolio of trades and the Maximum Drawdown tells you the peak-to-valley decline during a specific period of time.
Constancy and Consistency: Find a trader who is a constant profit maker. Someone with at least a track record of 1 year
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Popularity: Look at someone with a decent number of followers and copiers
Pips: Look at their pips and keep in mind the instrument the master is trading. Higher pips are more tolerable on high-value instruments
Copy Slippage: Copy slippage is inevitable, but it can be reduced with the right online social trading tools. You may still be affected by slippage if the trading terms you have are less favorable that those of the master you are copying, or if the master traded in a time of high-volume like during news releases, however, you can find masters with positive slippage rates. Positive copy slippage (anything above zero) means that you as a copier are getting either the same terms or sometimes better terms than the master. Copy Slippage between 0 and -5 gets a 4-star rating in our book, and numbers below -5, you should really keep your eyes open in analyzing all other data above.
So what are you waiting for? Jump on the social trading wagon and ask your broker for details.