Social trading refers to the new behavior of using web-based social technologies to augment your investing, as well as using a platform designed specifically for this purpose, often called a social trading/investing network. The latter are often niche communities of like-minded individuals who share ideas related to their specific area of expertise.
In a nutshell, social trading is basically crowdsourced investing. Instead of relying solely on fundamental and technical analysis, social networks enable investors to tap into the collective financial wisdom of their peers to make more informed investment decisions.
In many ways, social trading is a return to the roots of investing. Investing is inherently a social activity, yet along the way we somehow forgot this crucial fact and chose to go it alone. The image is of the sleep-deprived, bleary-eyed, over-caffeinated day trader pouring over candlestick charts. Or the well-appointed broker sitting at his over-sized mahogany desk, calling the shots. Both are lone wolfs, singular instances of brilliance who know everything there is to know about the markets.
Yet, the reality is we’re all not so brilliant. And that’s OK. We need to discuss our ideas with others, weigh their opinions, get new input — you know, all that social stuff — before we make a decision. When we do this, we tap into something everyone has: a specialty. And when we do this on a large scale, together we become smarter than even the smartest bleary-eyed day trader in the room.
This is where social trading shines. Perhaps you know a lot about real estate, but not so much about pharmaceuticals. But you see that the industry is growing and you want to get in on that growth. Through your favorite social trading/investment network you connect with Walter who happens to be a very accomplished chemist with a penchant for mitigating risk and knows quite a bit about the pharmaceutical industry. Suddenly, you’re clued into an industry you had no idea about, from an insider’s perspective. Moreover, you can observe his trading activity and copy what he does.
What if you don’t know anything about investing but know you should probably hop on the boat to save for retirement, to pay off your student loans, or to establish some sort of financial freedom for yourself and your family? What better place to learn than a “room” full of investors of all skill levels and expertise? Most social trading platforms also have ways of tracking your own performance so you can see your improvement over time, learn from your successes or mistakes, and so forth. In fact, if you’ve never invested before and want to, we’d go so far as to say a social trading/investment network is the best place to start. From there you can meet more experienced investors, perhaps they suggest books or videos to watch, stocks to monitor, or their favorite investment strategies. In the end, you come out of it a better investor. And some social trading sites even provide stock market simulators. We’ve written before about the benefits of using a simulator to improve your investing.
Social trading is the future of investing. The financial space has been slow to adopt social media, for better or worse, but with the rise of smart data the benefits of doing so are apparent. The most successful social trading platforms will be those that cut through the noise by delivering the best information to their users based on their behavior and interests, and give them reliable reputation indicators so they can quickly and thoroughly evaluate the merit of other investors. We do this on SprinkleBit. We focus on what investors actually do not what they say.
If you’ve never seen a social trading platform, we invite you to check out SprinkleBit and see how you like it. If you have any questions, ask anyone on our site. They’ll be more than happy to help you out!