Social trading has been around for a while – it's where traders share all the trades they make, so you can copy them. But the trading has been limited to forex. But that has all recently changed. eToro – the worlds largest and most popular social trading network now lets you copy traders who trade in stocks. Social trading stocks has arrived!
First Off, How Does Social Trading Work?
What if you took a social network, and turned it into a trading platform? What would you get? A social trading platform. There are lots of different social trading networks, but as I'm most familiar with etoro, I'll explain how it works.
1) When you open a trade on etoro, that trade is posted to your profile, and everyone can see it.
2) When you close a trade, that is also shared, so people can see if it is profitable or not.
3) You can “copy/follow” other traders on etoro. When you “copy” a trader, you invest, say $100 in a trader, and then whenever they open a trade, your account will open that trade too. Your investment amount will be scaled depending on how much you've chosen to invest in a trader.
Social Trading is for Beginners
You don't need to be a forex guru or stock picking expert to social trade. This is because you can follow others and automatically make the same trades. You just need to pick the right people. And yes, there is some skill to picking the right traders. Read my guide here for more help on finding the best traders to copy.
Introducing Social Trading for Stocks
eToro is the first platform I've come across (legit platform) that offers stocks. In the past you've been able to invest in currency (forex) and commodities. Stocks are a obviously a bit harder to do. eToro took their time, and they have put together a really impressive offering. And it works really well!
Forex tends to be a little wild. It's hard for forex traders to create consistent results. Simply because the markets can move with massive swings. I've found that stock trades tend to be a lot less violent. So I've begun copy trading investors who invest in stocks as well as forex. And I've had great results.
So Do I Actually Own the Stocks?
When you open, lets say an Apple (aapl) trade and buy $50 worth, do you actually own the stock? Nope. You are a buying what's know as a CFD. You'll be able to buy and sell them at the market rate, however it can be done much faster than actually buying the stock. The other advantage of CFD's is you don't need to buy an entire share. You can buy a fraction of a share. eToro lets you buy stocks with as little as $10 which is awesome. You can also open leverage CFD trades on etoro, which increases your profit potential, but it also increases the amount you could lose. I would recommend staying away from these unless you are an advanced trader.
Can you Short stocks on eToro?
Yes. Again this is more of an advanced trading technique. If your new to trading, I would recommend just copying the trades of the actual traders on etoro. Many of these traders will open “short” positions which will of course will be copied automatically by you.
What Type of Stocks are Available?
eToro offers a selection of stocks. Meaning, you won't find every company listed in the major exchanges. But the goods news is they have all the big players. You'll also find stocks from all over the world. Which lets traders reach out and invest in different markets. In my view, the bigger the diversity, the better.
How much Does it cost to start Social Trading?
eToro has a $200 minimum first time deposit. After this, you can deposit any amount (over $10). I would recommend starting with between $200-$500. This will allow you to copy multiple traders. The more you can spread the risk the better. Make sure you're comfortable with how the platform works before you try investing more. And remember, just like all investments, social trading carries risk. And it can be more risky, then many other types of investments. Start with a comfortable amount and take your time! It's not a get rich quick scheme.