22 February 2023 • 10 min read
It is often said that imitation is the highest form of flattery, but it can also be extremely profitable, especially when it comes to social trading. If you want to trade like the best, then a case can be made for emulating the best traders.
As its name implies, social trading involves a community of traders, rather than one single trader, the goal of which is to harness the “wisdom of the crowd” for everyone’s benefit. Although the practice has existed informally for decades, the rise of the internet has enabled groups of traders to come together virtually and in person in order to share their trading knowledge and expertise about different asset classes and markets. Investors now have the ability to actually see how more experienced traders invest and then decide whether to mirror or copy them. The inverse is also true, namely that experienced investors can now rent their successful strategies to less experienced traders.
A perfect example of crypto social trading is Trality’s Marketplace, where bot creators and bot followers can meet and collaborate for mutually beneficial purposes. But there are many other social trading platforms (whether Forex, the traditional stock market, or otherwise) that offer traders an access point into the world of social trading. In the following article, we’ll explore the history of social trading (hint: it predates eToro) before looking at how to get started with crypto social trading yourself.
You’ll often read that social trading first emerged with eToro around 2010. There’s only one problem, though. Such oft-repeated claims simply miss the mark for a number of reasons. While it is true that eToro has become a social trading juggernaut over the past decade, it wasn’t the first platform as many people claim, and it had social trading features before the 2010 release of OpenBook (basically their innovative social trading platform back in the day). It should also be said that social trading itself predates actual social trading platforms.
Among the many revolutionary changes ushered forth by the internet was the ease with which people could communicate with each other over great distances. Prior to the Net, you would have been limited to sharing trading tips and info with family, friends, and co-workers—a narrow group of people. And while more professionally-oriented investors could opt for face-to-face networking via specialist conferences and trading seminars, which provided an interactive way to go about social trading (albeit in a rudimentary way) and learn from others, even this had its obvious limitations.
With the emergence of the internet, however, came the creation of various new channels and methods of communication, which were used to drive the development and adoption of social trading on a much wider scale. Online trading forums and even early trading chat rooms, for example, provided virtual spaces for traders to gather, discuss market conditions, share trading ideas and strategies, and offer feedback on each other’s trades in real-time. Such chat rooms were the Web 1.0 predecessors of today’s Discord channels and Telegram groups.
It’s hard to believe today that there were only 600 total websites by the end of 1993, but as web pages on the Net began to mushroom investors could attract the attention of other traders, ones who had their own dedicated websites. Newsletters delivered digitally to people’s newly created e-mail accounts provided a novel way to share trading ideas and strategies with an ever-increasing subscriber base across cultures and time zones. Entrepreneurial-oriented traders began to offer their services to other investors, who would then mirror the experts’ trades.
These methods allowed traders to engage, at least to a certain extent, in social trading, but traders were still limited by the available technology and the difficulty of copying trades or accessing information instantaneously (to say nothing about clunky web designs).
Quite a few social trading platforms were created during the 2000s—some of them predating eToro. In his book Fintech Business Models. Applied Canvas Method and Analysis of Venture Capital Rounds (2021), Matthias Fischer writes, “The trend of social trading started when ZuluTrade launched its operations as the first social trading platform in 2007.” However, Fischer misses an even earlier social trading platform, which was likely the first of its kind.
Founded in 2000, Collective2 started offering traders a mere three years later the option to follow trading systems created by other traders, as the screenshot from their website demonstrates. In other words, Collective2 preceded ZuluTrade by four years in terms of offering social trading functionality to retail investors. Remarkably, we’re still using the same language and approaches to social trading that the earliest social trading platforms used twenty years ago.
Greek company ZuluTrade entered the social trading scene in 2007, following its founding by Leon Yohai and Kosta Eleftheriou, making it the world's first FOREX autotrading social community. Unlike Collective2, though, ZuluTrade experienced significant growth during its early years, boasting 5,000 active accounts, over $150 billion USD in transactions, and 500% annual growth during its first two years.
Another early social trading platform worth mentioning is Boston-based Currensee, which was established in 2008 by software developer Asaf Yigal and Forex trader Avi Leventhal. A financial services company that functioned as a social network for foreign exchange traders (it also provided a mirror trading functionality), Currensee was acquired in 2013 by Oanda, but ceased operations the following year.
eToro makes it faster and easier than ever to execute trades, watch your trading activity, share, and enjoy financial information - using real or virtual money. It is a unique and user-friendly platform, which combines multidisciplinary expertise from the fields of finance, software development, and design to bring you the next generation of trading.
With the introduction of its OpenBook in July 2010, eToro changed the social trading game by offering a user-friendly interface and real-time trading data, making it easier for traders to engage in social trading, thereby improving the overall trading experience.
This new social trading network now made it possible for investors to view, share, and copy other investors trades in real-time, creating a novel level of interaction among investors that increased the pace of knowledge sharing while decreasing the learning curve for newer investors. Sound familiar?
With the history of social trading out of the way, how does it work? As we described in our article on copy trading, social trading is more an umbrella term for observing and following the trades of a more experienced investor. As such, social trading includes copy trading and mirror trading; investors can engage in social trading by trading manually or implementing automated trading strategies.
So when we ask how social trading works, what we first need to do is to choose a particular type of social trading. For the sake of this article, we’ll explore the dynamics of copy trading crypto (a form of social trading) using Trality’s Marketplace.
Trading is difficult, lonely work, with long hours of trial and error (and enough trading mistakes to make even SBF blush), but with social trading it doesn’t have to be. Since it brings together crypto trading bot creators and investors for mutually beneficial purposes, Trality’s Marketplace is by definition a social marketplace.
Investors have the option to rent profitable bots tailored to specific risk tolerances (low, medium, and high) and individual investment goals as well as benefit from a full suite of transparent metrics. Real-time updates mean that investors have complete control over their investment portfolio and can unfollow bots and rent alternatives at any time.
Bot Creators benefit, too, since they can monetize their bots and earn passive income from investors around the world by having their bots listed on Trality’s Marketplace. Most importantly, all bot algorithms remain completely private, meaning that each creator retains full IP rights.
Let’s take a look at a brief walkthrough of copy trading on Trality’s Marketplace in which you can see how easy it is to get started in five simple steps.
Step 1: Review the bot offerings in the Marketplace and decide on the one that’s right for you.
Step 2: If it isn’t live, then it isn’t real. Start live trading with the bot and increase your returns.
Step 3: For maximum convenience, open a Binance-backed Trality Wallet.
Step 4: Add funds by credit card, bank transfer, Apple Pay, or Google Pay and start trading over 350 cryptos instantly.
Step 5: The fifth and final step is to deploy your bot for live trading!
Historically, social trading has proven to be an effective way to democratize investing, which continues to be dominated by large financial institutions. Think of the Trality Marketplace, then, as your declaration of independence from legacy institutions, a New World in which the latest developments in artificial intelligence are being harnessed for the benefit of every investor.
Well, it depends on who you ask.
A study cited on Düsseldorf’s WHU – Otto Beisheim School of Management website concluded that “the majority of signal providers does not generate positive net returns for signal followers. Therefore, signal followers should be very cautious when investing their money on social trading platforms.”
On the other hand, social trading, as our brief timeline above indicates, has existed for decades. And we’ve deliberately chosen our starting point at a moment in history when investors started to enjoy relatively easy internet access in the 1990s. For as long as people have traded, they’ve been doing it socially, and this reaches all the way back into the earliest days of human bartering and investing. If it weren’t profitable, then people wouldn’t continue doing it. Moreover, we are social beings, and so it’s only natural that we invest via social trading platforms.
In terms of profitability, there’s a clear way to settle the matter. Since copy trading on Trality’s Marketplace was used in our example, each and every investor can see for themselves whether the bots on Trality’s Marketplace are profitable simply by checking the accompanying metrics. And the metrics can be broken down into more precise time frames, including one-hour returns, twenty-four hour returns, and all-time returns. For social trading to work, it has to be transparent, and this is one of the areas in which Trality’s Marketplace excels.
In an article on social trading, we’d be remiss if we didn’t say a few more words about social media. As we mentioned at the beginning of this article, Social+ companies such as TikTok foster communities of people who coalesce around a particular interest or activity, whether that activity involves sharing cat videos, dance moves, or investment advice.
As a regular (or even new) reader of our blog, you’re likely within a certain age range, meaning that you’re already familiar with the ways in which social media platforms (e.g., Twitter, Instagram, TikTok, Facebook, Discord, Telegram, etc.), a social news aggregation, content rating, and discussion website such as reddit, and streaming platforms such as YouTube can foster communities of like-minded investors interested in separating the crypto wheat from the crypto chaff.
It’s the same when it comes to investing in the stock market, too. As the New York Times has reported, newbie investors are cutting their teeth in investing by immersing themselves in the world of social media in order to learn the ins and outs of technical and fundamental analysis, among other things. Crucially, unlike legacy institutions, these younger investors are keen to share their knowledge with other investors, with some posting TikTok videos of candlestick charts or explanations of how to use relative strength index in order to determine when an asset might be overbought or oversold.
If you’ve made it this far in the article, then you might even be yelling at your screen “But what about GameStop?! And you’d be right. If anything, GameStop illustrates the power of social media and social trading to turn the tables on the wolves of Wall Street and wreak havoc on the stock market. Netflix’s “Watch Eat the Rich: The GameStop Saga, for example, offers a window into the fascinating saga of how amateur retail investors, who shared tips and insights on reddit, managed to short squeeze American video game retailer GameStop’s stock for major gains before everyone else caught on to the plan.
And, finally, since we here at Trality HQ enjoy a good laugh, we thought that we’d end on a high note with a couple of crypto memes focused on social trading.
Did you ever have the sinking feeling that you’re missing out on something?
And this one, which isn’t technically a meme, is (how shall we put it) a bit loaded.
So now you know. Social trading has been around for decades in one way or another, with traders forming groups to share their knowledge and expertise in order to take profit from markets. Although crypto is a new and exciting asset, with some even calling it the future of money, the same rules of the social trading game apply. However, the safest, most convenient, and most flexible way to test the waters of social trading crypto is to rent bespoke, fully vetted crypto trading bots from a trusted bot marketplace.
Trality’s Marketplace provides a safe, reliable, and profitable place for both expert bot creators and crypto investors to come together for mutually beneficial purposes. Trality also offers a range of custom tools and educational materials for investors of all levels, from novice to expert, catering to the needs of a growing community of crypto enthusiasts across the world.
Don’t be a stranger—explore how you can beat the market in any condition with Trality’s cutting-edge automated investment solutions today.