The key feature of most social trading platforms is copy trading, or the ability to automatically copy the investment moves of others, saving time that would otherwise be spent on manual trading and reading news and research about financial markets.
However, you must be careful when selecting which investors to copy, because, ultimately, you are putting your money in their hands.
Now, features on many social trading platforms have made it easier to identity and copy top social traders. While a main feature of such platforms has always been the investment history of other users, most investors are now also assigned a risk score.
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Based on a scale from one to 10, this risk score lets others quickly determine the risk impact that following a specific investor would likely have on their portfolios. The risk scores are based on how leveraged an investor is, what instruments they use, and how diversified their portfolio is. Many platforms block those with the highest risk scores from being copied by others, in an effort to mitigate losses.
Most platforms also identity the most popular traders, letting users know who others are following, and making it easy to set their accounts to copy their trades. When users open an account they can also enter information about what they are looking to gain through copy trading and if they have any limitations on what types of traders they want to copy. This also helps the platform make suggestions on which users to copy.
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As copy trading has gained popularity, there are also many websites that offer tips and news about the industry, including discussions about top traders on various platforms.
In addition, features like stop-loss settings and the ability to temporality pause who you are automatically copying also help to mitigate risk. While copy trading, like all forms of investment, is not a guaranteed way to make money, the ability to follow the moves of other investors helps give confidence to those new to the market, and also saves time spent on research and manual trading.
As this form of trading has grown in popularity, the tools to help identity the best investors to follow and copy have also improved.