August 23, 2023

Social Trading vs. Copy Trading: Understanding the Differences

When it comes to trading, there are many different paths one has the option to travel down. From the trading type (day trader, swing trading, etc.) to the trading method, for example, Social and Copy Trading.

Social Trading and Copy Trading are two popular investment strategies that allow individuals to benefit from the expertise of experienced traders. While both concepts involve interaction between traders, they differ in their execution and level of involvement.

Understanding the differences between Social Trading and Copy Trading can help you choose the approach that best suits your investment goals and risk tolerance. Getting those factors right can make a difference in your future success as a trader.

Social Trading

Social Trading is a strategy that emphasizes community engagement and sharing information and insights among traders. In a Social Trading platform, traders can connect, follow each other’s activities, and share trading ideas, strategies, and market analysis. The primary focus of Social Trading is on fostering a collaborative environment where traders can learn from each other and exchange knowledge.

The primary belief here is that two minds (or thousands) are better than one. It’s a mastermind group in that many individuals form groups with others of similar experience or knowledge. In some cases, specific traders stand out in the community as “The” trader, whether that’s due to the amount of experience, success, money, or all the above, that they have.

Social trading is a highly effective form of community empowerment; when individuals make money, they grow together.

Key Features of Social Trading

Sharing Resources: Social Trading platforms facilitate communication among traders, allowing them to share different perspectives, trading strategies, and investment ideas. This interaction enables less experienced traders to learn from more seasoned traders.

It helps produces a community of traders who often go on to mentor other community members, which keeps the information flowing and the community growing.

Decision Autonomy: In Social Trading, traders retain complete control over their trading decisions. Followers may choose to replicate specific trades or strategies based on the information shared by other traders, but they can make their own investment choices.

This provides many benefits, such as always remaining in full control and the opportunity to log potential trade setups and then go back and review that information and learn at your own pace.

Learning Opportunities: Social Trading provides valuable learning experiences for novice traders. By observing and interacting with experienced traders, individuals can gain insights into market dynamics and improve their trading skills.

These communities also tend to help to answer each other’s questions when possible, so it’s like having virtual tutors.

Social Interaction: Social Trading fosters a sense of community, allowing traders to engage in discussions, share experiences, and collaborate on various aspects of trading. When multiple people come together over something they all share an interest or passion for, bonds commonly form that can lead to your support or even a trade group/mastermind group.

Copy Trading

On the other hand, copy Trading is a more passive investment approach that directly replicates experienced traders’ trades. In a Copy Trading platform, traders can automatically mirror selected traders’ trades in their accounts. This means that when the chosen trader opens or closes a position, the same trade is proportionally executed in the follower’s account.

This method combines all the aspects of manual trading but in an automated fashion, which allows for the processing of loads of information at lightning speed. It’s available to all traders regardless of their experience, background, education, or lack thereof.

Key features of Copy Trading

Automatic Replication: In Copy Trading, followers replicate the trading activity of selected traders in real-time without manual intervention. When the chosen trader makes a trade, it is automatically copied into the follower’s account.

In the traditional trading industry, it’s common for traders to place numerous trades over the open market hours, which is around 7 hours in total. However, since the crypto market always operates 24/7 and never closes, trades flow all day and night, even for holidays.

Traders could have triggers, alarms, and trades going off at any time of the day (or night), which would be impossible to replicate manually in real-time.

Limited Decision Making: Copy Trading offers a hands-off approach to investing, as followers rely on the expertise of the selected traders to make trading decisions on their behalf. This also presents another learning opportunity as you could study the trader you are copying to see their actions and why.

When the volume is flowing, the candles are moving, and prices are jumping around, it can be hard to focus while retaining 100% efficiency in trading. Sometimes, a great trade can be missed by mere seconds.

The goal is to think quickly yet smartly while acting simultaneously.  

Risk Management: While followers benefit from the potential gains of successful traders, they also share the same level of risk. Any losses incurred by the copied trades will also be reflected in the follower’s account.

Even then, they aim to maintain their capital in their trade. It’s better this way as you know they have more at stake than you do.

Also, although you are mirroring another person’s trades in real-time, you can permanently shut down the copy trading bot, ensuring no more orders are placed.

Diversification: Copy Trading allows for diversification by following multiple traders with different trading strategies, which can help spread risk across various assets and approaches.

They may also spread their copy trading across different coins instead of one and deploy multiple bots. Some traders lean towards trading a set number of coins, whether because they support those coins or believe they have identified their trends in movements etc., so you may be forced to look elsewhere regardless in due time.

Which One is Right for You?

Social Trading and Copy Trading depend on your trading experience, risk tolerance, investment objectives, and comfort level. There is no right or wrong answer, and even if you choose one, you can (and should experience it) always switch to the other method.

Starting with social trading until you feel more comfortable may be the best idea until you feel ready to try copy trading.

Social Trading may be suitable for the following:

Traders interested in learning and gaining insights from other experts find this type of trading highly beneficial. 

It appeals to Individuals who prefer to maintain control over their trading decisions and want to implement a more collaborative approach to trading – but may need a bit of oversight.

Those looking to exchange ideas and interact socially within a trading community or grow together with a system, Someone looking to hone their craft and that will take trading seriously; these are all perfect fits for social trading.

Copy Trading may be suitable for:

Novice traders who lack experience prefer to rely on the expertise of more skilled traders.

Investors with limited time for actively managing their investments prefer a hands-off approach to trading.

Copy trading is perfect for those seeking different insights and perspectives by following multiple traders with different trading strategies. It even appeals to individuals who may be familiar with trading but are new to cryptocurrency trading and perhaps want to ease into the venture as it allows one to learn at a “self-paced.” 

The Road Ahead

Social Trading and Copy Trading are valuable tools that allow traders and investors to benefit from the expertise and insights of others. Social Trading encourages knowledge-sharing and collaboration among traders, while Copy Trading offers a more passive approach by automatically mirroring the trades of experienced traders.

Remember, although these two options are essential as either can add value to your journey as a trader, the main thing to remember is that you don’t have to stick with just one. Some traders do both!

Always do your due diligence on any platforms you are considering. This can be an exciting time for you as you discover new resources and techniques, but taking things slow and processing your decisions is vital as a trader.