One major difference between Forex trading and other financial markets is its global nature. Sure, something like the stock market too can be accessed globally, but not with the same flexibility. Thanks to this feature of the Forex market, it has allowed individuals from all over the world to interact, and this has borne social exchanging in the industry. Now, individuals are able to talk freely about their trades and share ideas to help one another out. To some extent, you could say that FX individuals just like the stock individuals we see in movies, are proud and like to brag about their earnings. That would explain why communal exchanging platforms are always lively with debates, wouldn’t it – a clash of egos. (Here is: How to find reliable trading signals)
Nevertheless, that does not take away from the fact that many individuals on such sites know their stuff, which is why it may actually be recommended to listen to them. The only problem is in knowing how to distinguish between those that can be trusted and those that cannot. Typically, the service is provided by the FX brokers. That is why, in this post, you are going to learn the characteristics that make for the best communal trading FX brokers. After that, you should be able to make a good choice for yourself. (This is: How to complain against a broker)
Simply put, social exchanging is the act of making trades based on input from other individuals. Typically, a trader is expected to do their analysis of the markets and place trades based on their findings. Social exchanging is the opposite because a trader relies on others to make a decision. The input is usually shared through various communal trading platforms, but the top communal trading broker will have the most reliable information. The practice of communal exchanging has only recently become popular in the FX market, but it is growing fast because individuals are realizing its benefits. (Finally: Putting an end to broker bashing)
How do communal trading FX brokers operate?
Forex brokers conduct most of the communal exchanging operations in the FX market since the trades have to be executed by them. There are several structures they could use, but the most common one is the PAMM account. First, a Forex broker’s client who feels confident in their skills creates a PAMM account. Once the account is created, other clients can make a deposit into the account while the PAMM account holder executes all the trades. Since this is all done through the broker, it is up to them to create an accurate profile of the PAMM account manager – their exchanging history. It is with this history that potential traders can decide whether they would like to invest in that particular PAMM account. (Do you know: What is PAMM Account in Forex?)
To get their money back, clients make a withdrawal request, and their capital is withdrawn based on the proportion of their initial investment. There are also some additional charges involved in most cases, and traders need to be aware of these. To learn more about PAMM accounts, read this post about how to select a PAMM account.
What are the benefits of social trading?
One of the main reasons people opt for copy trading in FX is to increase their profits. Whether it is a novice trader or an experienced trader, social exchanging can increase profits either way. For the former, communal exchanging generates revenue while they are still learning the ropes. In the latter case, communal exchanging can be used as a form of hedging. For example, an experienced trader may dedicate a portion of their capital to communal exchanging while they too are making trades. This ensures that they always make a profit and limit the losses simultaneously. (Here are the: The 3 Most Trusted Exchange Authorities in The World)
Another advantage to communal exchanging is in education. There is no better teacher than experience, even if it is just by observation. If a novice trader engages in communal exchanging, they get to observe and learn from the best FX individuals out there. Afterwards, they can mimic the same exchanging strategies they observed in order to become better individuals themselves. Furthermore, they may even learn from the mistakes of their peers and know how to avoid them in their own exchanging careers. (Some: 7 Powerful Candlestick Patterns to Learn and Understand)
Finally, the providers of communal trading signals are paid as well, providing them with a secondary source of income. The most popular providers can have hundreds of individuals, all of who pay for the service, and that can be a good return. Besides, having a large pool of capital to work with in, say, a PAMM account can allow such a provider to make larger trades and make more money for themselves as well as their clients.(This is: Why Traders May Need To Use a VPS Service)
How to choose the best social exchanging networks?
These and several other benefits have made communal exchanging to grow exponentially over the past few years. Today, there are very many FX brokers offering communal exchanging to choose from, which is a good thing. The presence of multiple choices provides alternatives to choose from and find the best match, but it also makes it difficult to tell the good from the bad. To help you in this quest, these are the five main considerations you have to make before choosing which broker suits your needs best. (Have you ever wondered: What Is The Future Of Cryptocurrency In Finance?)
How profitable are they?
Of course, you want to make money and not lose it, which is why you even considered communal exchanging. Consequently, you have to make sure that the service is actually profitable. Profitability is usually indicated in percentage, where the higher the better. However, you still need to consider other factors that led to those profits, such as the drawdown and risk appetite. Some individuals can be very profitable simply because they took huge risks, but these risks could also be their downfall. Like Warren Buffet said, the long-term game is usually the most profitable. Nevertheless, if you feel like you’re willing to take a risk, go for it, just as long as you are aware of the risks. (These are the: The Top 5 Coins To Buy In 2018?)
Determine whether the Forex broker is legit
The most important factor to consider when choosing the best is the security of your capital. This has to do with the company itself. A good company will provide you with good service and vice versa. For example, if the FX broker providing communal exchanging services cannot be trusted, then your money will never be safe in their hands. There are a lot of FX scams being carried out by brokers who seem like legitimate companies, but their victims learned otherwise the hard way. Therefore, you need to conduct an in-depth analysis of the company and, most importantly, if they are regulated. FX regulation provides more cover to your capital since it makes it possible to seek legal recourse when you’re wronged. Only regulated communal exchanging Forex brokers can offer you this protection. (Do you know: What Is The Financial Commission And Can It Be Trusted?)
Make sure they have necessary resources
When it comes to resources, this has to do with both human and technological resources. For the former to be adequate, the Forex broker must have a large enough number of individuals among whom you can choose. The best FX social networks have hundreds of individuals to choose from, giving you the flexibility you desire. Besides flexibility, having a large pool of individuals providing the same service generates a sense of competition, motivating them to do better in order to gain more followers. (This is: The Trade Volume Analysis Forex Trading Strategy)
Then the company must have adequate technological resources to handle the entire system. As described above, communal exchanging is a fairly complex system that requires plenty of computing power to handle all the operations adequately. For example, use of signals may require that individuals use a VPS service. Virtual Private Servers (VPS) act like virtual computers that run continuously 24/7 to execute hundreds or even thousands of trades. Obviously, this will require that the broker have adequate technology to create these VPS servers and execute all the trades. A lack thereof will create bottlenecks, lags and eventually the whole system will collapse. As a result, a trader should ensure that their social exchanging broker is capable of handling the service. (GDPR Is Finally Here! All You Need To Know And How It Affects You)
Charges for the service
FX brokers providing communal trading do not offer the service for free, as there is almost always a charge incurred. In rare cases, there may be free communal exchanging services, but these are usually not good quality services. In such cases, the broker is usually just seeking to attract new clients to their platform, which means they may not have the necessary resources required as described in the previous section. Therefore, when you are choosing your preferred communal exchanging provider, the issue of charges must be considered. (Learn about: Exchanging the FX arenas based on free arena activity)
Typically, the largest portion goes directly to the trader generating the trading signals. They may either charge a portion of the profits or a flat monthly fee. The former is more recommended because you only get to pay if you make money. Furthermore, monthly charges may add up over time and take away from your profits. For example, say a 5% premium is charged upon withdrawal, and you happened to have made $1,000, your total charge would be $50. On the other hand, if the flat monthly fee is $20 and it took a year to make the profit, you would fork out $240. (This is: How Coin Scams Operate And How To Avoid Them)
The best choice will depend on the fee structure, which you need to consider very carefully. Your best option will depend on the length of time you plan to invest and the initial capital you deposit. For example, if you have a small capital, it is better to be charged a commission rather than pay a monthly charge that may reduce your capital over time. (To be safe, learn: How to protect yourself from margin call)
Every social exchanging platform will have its own rules regarding withdrawals. The top communal exchanging FX brokers will allow withdrawals immediately upon request at any time. However, others will have a lock-in period like the one seen with hedge funds. In this kind of structure, funds dedicated to communal exchanging may be unavailable for deposit until a certain time limit is reached. Obviously, this may be inconvenient when you happen to see yourself making losses but are unable to close the trades. On the other hand, communal exchanging systems that allow immediate withdrawals may still charge a penalty for doing so, which means you have to decide what option you would be more comfortable with. (Do you know: Which Are The Most Influential Cryptocurrency Markets By Country?)
Where do you find these communal trading services?
Since FX brokers usually offer communal exchanging, the best way to find such services is by first identifying the best FX brokers.Once you have identified your top choices of a FX broker, you should then consider the above criteria to narrow them down and find the best option. It may be a daunting task at first, but the effort is going to yield results that you will enjoy for years. (How to choose a Forex broker: basic rules and useful tips)
To see how social trading can be effective, listen to this expert explain more about its benefits