The Pros and Cons of Social Trading: Is It a Good Idea for New Investors?

Social trading has the potential to introduce inexperienced consumers to the world of crypto. Here, we look at the pros and cons.

Navigating the world of cryptocurrencies can be nightmarish at the best of times. New coins and tokens are continually emerging, and volatility means that digital assets can be flying high one day and crashing the next.

Understanding how the industry works and where opportunities lie can take an exhaustive amount of effort — and it could be argued that the complicated nature of crypto dissuades many ordinary traders from getting involved.

“Social trading” is being touted as a potential solution. Through specialist crypto platforms, such as exchanges and wallets, inexperienced consumers have the potential to emulate the strategies of others. They can also gain access to insights and perspectives from seasoned traders, enabling them to understand why crypto assets may fluctuate in value — and the indicators that potentially offer clues to future movements.

But how do these tools work, and what are their upsides and downsides?

The pros of social trading

Crypto trading is a challenging beast. The markets are open 24 hours a day, seven days a week — meaning it takes a lot of energy and determination to stay on top of every development. For those who are less experienced, emotions can also get in the way of rational decisions, sometimes resulting in traders losing even more capital because they enter into positions erratically.

Social trading is being regarded as a potential antidote to this. When done right, it can mean that a cool-headed, savvy trader is making decisions on behalf of other investors. These traders are normally chosen based on the types of strategies they specialize in, as well as the returns they have generated in the past. To incentivize them to share their strategies, they’ll usually receive a commission of the profits that their followers…

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