Social trading is an online trading platform where investors get to follow traders and copy their trades. It has become very popular in the recent years. It is designed to bridge the gap between traders and followers (investors); where followers get to benefit from traders’ expertise and make some money without the need to know how to trade. For traders they also benefit from additional fees they receive from the social trading platforms (these are indirectly from the followers in term of the commissions they have to pay to follow trades or embedded in the higher bid and offer spreads).
The two most popular social trading platforms are eToro (for shares) and ZuluTrade (for forex). There are also other smaller players such as Roboforex, Instaforex, Ayonda, and Darwinex etc (in no particular order).
Over the last year or so, I have literally tried more than half a dozen social trading platforms, as both followers and traders. I wanted to validate the concepts of social trading and at the same time evaluate the different social trading platforms. Personally, I feel the concepts are sound as they are in line with comparative advantages theory in economics; that is everyone is expected to specialise in a production where he/she has a relatively lower opportunity cost. For instance, if you don’t know how to trade or have no time to follow the market, you can follow traders, copy their trades and at the same time dedicate your time in more productive activities such as your day job.
When I evaluated the quality of different social trading platforms I focused on the following factors;
· Competitive pricing both in term of bid and offer spreads and commissions (if any)
· Ease of account opening, cash deposits and withdrawals
· Slippages and execution errors
· Responsiveness of customer services
· Quality of active traders to follow (both real money and demo traders)
· User friendliness of the system and app (if any)
Taking all these into consideration, personally I feel ZuluTrade is the best for forex social trading at the moment. I am not saying it is perfect, but relative to others it is the one I have been using for the longest period.
ZuluTrade is only a social trading platform, so you would need to find a broker to settle your trades. ZuluTrade supports a wide range of brokers. However, the best one to use for ZuluTrade is actually AAAFx due to the following reasons;
· AAAFx is fully integrated with ZuluTrade and thus no extra fees for their service and fast execution with the least possible slippage.
· EU Regulated Trustworthy Broker
· Offers a variety of types of accounts: individual, Islamic, corporate, foreign corporation, institutional accounts.
· Cryptocurrencies are available to be traded along with forex pairs, indices and commodities.
· 24/5 multilingual customer support available over live chat, phone and email.
Choosing the right platform is only half of the battle, the other half is to identify the right traders to follow. I use the following parameters to shortlist a trader.
· Maximum loss in pips per trade
Ideally I would prefer a number of 50 pips or less, and the smaller the better. But this need to be look at in conjunction of maximum number of open trades.
· Maximum number of open trades
The smaller the better. The maximum number for me is no more than 7 open trades at any given time. Most of the time, I would prefer it to be in the range of 3 to 5 trades.
· Maximum drawdown
Again the smaller the better. A reasonable drawdown would be 350 pips or less, and no more than 500 pips.
· Demo or live account
Always prefer a live account over demo account. Especially if the trader tends to open a lot of trades at the same time and has a high maximum loss in pips number. Live accounts tend to be more prudent in capital management.
· Average winning pips per trade
Ideally this needs to be more than 3 pips per trade, and of course the higher the better.
Below are examples of two traders I like.