Finance

The difference between social and copy trading

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Social and copy trading are both popular trading strategies that allow investors to follow the trades of experienced traders or automatically replicate their trades. 

While there may be some similarities between social and copy trading, there are also some crucial differences. Let’s look at these differences to help you understand which type of trading is right for you.

The main differences between social and copy trading

The main differences between social and copy trading are as follows:

Level of control

One of the main differences between social and copy trading is each strategy’s level of control. With social trading, you can interact directly with your chosen traders via chat rooms or messaging platforms, giving you more control over the types of trades they execute. 

However, with copy trading, your interactions will be much more limited. Instead, you set up a trade replication system and let it automatically and fully copy the trades of your chosen traders.

Control over risk

Another key difference between social and copy trading is how they manage risk. While social trading puts you in control of the level of risk you take on with each trade, copy trading will often offer you a more automated approach to managing risk.

For example, some trading platforms will allow you to configure settings that dictate which types of trades are copied (e.g., copying all or only certain types of trades) or whether the replication system should be paused when certain conditions are met (e.g., when an account drops below a minimum threshold).

Strategy choice

Social and copy trading also differ in terms of which strategies they support – while most platforms offer both types of trading, some will only offer one, which means that it’s essential to carefully research the options available before deciding which type of trading is right for you.

Benefits of using social and copy trading

In addition to being easy to use, social and copy trading also offer a range of benefits for investors. For example, they can help you improve your trading skills by providing access to the knowledge and expertise of experienced traders. They can also reduce the time spent managing your trades, helping you focus on other essential aspects of your investment strategy.

 Additionally, both types of trading provide more control over risk than many other popular investment strategies – helping you protect your investments from potential losses.

Risks of using social and copy trading

Although both social and copy trading can be effective trading strategies, they come with their own set of risks. For example, copy trading can lead to over-trading if traders are not careful about selecting the right signals or copying the trades of too many traders. Similarly, social trading platforms can expose investors to additional risks related to other users’ inaccurate information or fraudulent activity.

Which type of trading is right for you?

Ultimately, this will depend on your personal preferences and investment goals. Social trading may be better if you’re looking for a better approach that allows you to control your risk level. However, if you don’t want to deal with monitoring and managing a large number of individual trades yourself, then copy trading may be a better option.

Why do UK traders use social and copy trading?

In recent years, social and copy trading has become increasingly popular among UK traders, likely due to the many benefits that these strategies offer, including ease of use, access to expert knowledge, and greater control over risk. UK traders also have a wide range of social and copy trading platforms to choose from – meaning that there’s an option to suit every investment style.

Finally

While social and copy trading is excellent ways to access financial markets, they each present unique benefits and drawbacks. If you want more control over all your trades, social trading may be a better option for you, but copy trading might be the best choice if you prefer a more automated approach.​ We recommend starting with Saxo Bank’s demo account and experimenting with trading before investing real money if you’re a novice trader.

 

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