For Forex Social Traders; Three Drawbacks of Social Forex Trade Copying

In their formative years, Forex traders depended on discussion groups and interactive forums as primary sources of trading strategies and ideas. Over the past 7 or so years, the Foreign Exchange Market has experienced an exponential growth in social trading, a relatively new phenomenon. The Foreign Exchange Market has two types of traders; on one side there are those who decide to first get basic Forex education (either via seminars or webinars) before manually trading currencies on their own, and the other side is those who prefer to make money quickly with as little education as possible. The latter prefers trade copying from social media websites as a perfect solution for making gains while trading.

In this age of information, it is quite simple for professional Forex traders to display their performance for other operators to see and mirror. All one needs to do is use copy websites such as Fxbook, eToro or Zulutrade and their strategies are posted there for anyone to study or copy. Copying trades has become an easy undertaking for traders as all they need to do is only open a Forex trading account with trade mirroring providers who will then offer them the opportunity to copy successful trades instantly. Recently, Forex experts have made it their mission to school both rookie and expert traders on the possible drawbacks of relying on trade copy websites. The following are three challenges marketers should expect to be faced with when utilizing these sites.

  1. Limited Information On Strategy Selection

In copy sites, most traders suffer from the “herd mentality.” They assume that a ‘successful’ Forex trader with a large following is what they only require to succeed in the currency market. Traders in these websites bet and punt that their dealer of choice is successful at what they do once they begin mirroring. They do this with no idea as to how these traders even trade in the first place or what currency pair they are trading. For instance, one might come across a novice trader in eToro asking the expert trader they are copying whether they make use of stop loss on their trades and how much balance they need to reproduce them. The expert trader would then reply by informing them that they do use stop loss but as part of a more sophisticated strategy (the stop loss being only the tip of the iceberg). Such situations paint a grim picture of how these websites have insufficient information on procedures used to trade making it difficult for novice traders to make informed decisions.

  1. Flagrant Selection Bias

Copy websites have a habit of handpicking profitable traders from a larger group in a bid to boast about the profitable returns traders make from their service. It is common for traders to come across messages on a website such as Fxbook that suggest that their top three traders make total returns of about +158.24% in a month. There is nothing wrong with posting such information (as most of the time it is accurate), but such information runs the risk of raising the expectations of otherwise novice traders. It is important for traders to note that they should not expect their performance to match that of the top performers they are mirroring since draw-downs are components of all trading strategies. In practicing selection bias, only good traders remain to represent the website, making them look good all the time.

  1. Limited Customer Support

A client support service has the primary task of helping clients make cost-effective and accurate use of a product. It includes training, maintenance and troubleshooting. A vast majority of Forex brokers offer live charts and emergency numbers for traders to contact them when in dire need of aid. Out of all the copy trading websites, it is only Zulutrade that offers the live chat function while rest (eToro and Fxbook) do not. Traders find themselves in a situation where they are forced to depend on Google or investment communities for answers when in trading conundrums.

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