Social Trading: 4 Tricks To Make Money!
Forex is one of the hardest industries of the world where 95% of the traders never make any money. It is a zero sum game which means for every winner there must be a loser. Therefore, you need some passive source of income in this field that pays your expenses and you are free to practice, learn and carve your trading.
There are numerous online programs that promise abnormal yields in pooled funding structure but all of them are scams. They accumulate money from lots of individuals and all of a sudden close their website and run away. Therefore, it is better to stay away from such schemes and invest in those programs that give you 100% control on your money.
As a newbie trader or an aspirant to generate passive income, you have three genuine ways to achieve your goal:
· Social Network Copy Trading
· Managed Account / PAMM (Percentage Allocation Management Module)
·Automated Trading by Forex Robot such as EA (Expert Advisor)
In this article, we will specifically discuss on how to succeed in social trading. Social trading allows you to copy trades of successful traders in a network. First of all, you need to know some facts about social trading that are vital for your success. Then, we will discuss tips specific in the context of different social trading networks that may help in your success.
Disclaimer
The information contained in this article is for illustrative purposes only. They are not in any way a financial advice or an invitation to invest your money following the information below. Trading is a high risk business, don’t invest more than you are willing to lose. Moreover I am disclosing that I’ve included some affiliate links in my articles. This means that I will earn a small commission if you decide to purchase a product. This commission comes at no additional cost to you. I only recommend products that are helpful and useful. Please do not spend any money on these products unless you think they are useful for you or help you achieve your goals.
Test the water first!
You should not blindly choose a social trading network and put all of your savings at stake. Rather you should peep into a platform, understand the risk, money management and reward of the network and then allocate a portion of your savings into it. Give few weeks and observe the results. If the results align with the historic performance and you feel satisfied with the returns, then go for a bigger amount.
This is important because many traders on the social network maintain nice history and statistics but they fall prey to the change of situation, unforeseen risk events and poor anticipation. Therefore, it is always important to test a network and a trader prior to going with big funds. It is even better to test a network with demo account.
Diversity!
After testing a social network, it is important for you to analyze the statistics of top traders and then allocate your funds in proportion. Do not put all of your eggs in basket. If one trader fails in a situation, not necessarily the other would fail too. Hence, you are advised to choose more than one traders to copy their trades. The key factor in diversifying should be the drawdown reflected in the traders’ statistics and the portfolio they keep. Never choose two traders with approximately same portfolio because unforeseen risk may hurt your investment. For example, if both the traders you choose trade EUR/USD and GBP/USD, and Brexit headlines result in both sides stop hunting. Then you may incur loss in both of your allocations.
Similarly, you should diversify in choosing more than one social networks. The reason is, some networks are more user friendly and more actively protect the rights of investor.
Patience!
After testing the social networks and choosing diverse traders to form a portfolio, your job is to stay back and patiently observe the things. Possibly, you may see the losses or drawdown in some or all allocations but that is part of the game. Do not make hasty decision and pull out your funds if you see few weeks or a month ending in negative. You need to be patient and allow your portfolio enough time to complete a cycle. The top traders you choose may have a certain drawdown and if the drawdown exceeds that level then you should act vigilantly and pull out your investment.
Affordability!
The most important thing is that you should never invest any borrowed money or an abnormal amount that you may not afford to lose. Therefore, you need prudence in choosing the amount of investment. Never think that the top traders of social networks cannot fail. There is always a chance of failure; that’s the reason why all of social networks mention that historic performance does not necessarily predict the future results.
Now, we discuss three important social trading networks and how you can succeed by managing your capital and the risk.
ZuluTrade: Risk & Money Risk Management
ZuluTrade does not put restrictions on how much money you invest or allocate which makes it quite difficult for a newbie trader to practice appropriate money management. However, the network offers some automated account controls. Make sure to keep those settings well aligned otherwise you may risk your entire account.
eToro: Risk & Money Management
The eToro money management principles allow you to allocate up to 20% of your capital to copy trades of a guru. The gurus, however, may take 1% to 100% risk in a single trade. Therefore, the maximum you could lose is 20% if you follow a high risk trader.
Hence, it is important for you to deeply look into profiles of guru traders before you allocate any funds for copying. It is recommended to allocate more funds to low risk traders.
Ayondo: Risk & Money Management
Risk and money management approach of Ayondo is quite similar to eToro as you are allowed to allocate certain percentage of your funds in copying trades. The risk and reward will be proportionately reflected in your account. However, you can enhance the leverage so when the guru trader risks 1%, your account will reflect 2% risk if you double the leverage. Ayondo allows you to allocate 100% of your capital in one trader if you desire but it is not recommended. Ayondo tries to limit the risk by removing those traders that show abnormal risk behavior.
MQL Signals: Risk & Money Management
MQL allows you to copy signals of only trader in your account. However, you have the choice to fix the lot size as you require.
In a nutshell, the success in social trading lies in two important factors. First is to choose the right trader to copy and the second is to manage the risk with prudence. Never go for blind risks.