Social trading networks are very effective in connecting potential investors with efficient traders. These networks allow an investor to copy the moves selected by successful traders instead of trading for themselves.
For investors, social trading yields a great opportunity to improve their finances. However, it shouldn’t be mistaken for an authorization to print money. Traders that avail such services are expected to perform a responsible role of choosing other traders that are worth copying. Social trading brokers help in ranking the traders depending on their past performances. Although you check these ranks frequently, the investors often turn out to be a quasi fund manager and identify traders that reflect the prospect of long-term investment.
Factors that Keep Your Social Trading Community Up and Running:
Equity Curve
You’ll be able to check the equity curve of a trader with a majority of the social trading networks. A line chart depicts the Equity worth historic levels. Some investment procedures depict extreme fluctuations alongside an overall trend that reflects the erratic strategy to move upward. As an investor, you must check out the consistency of a trader in developing an upward trend with restricted trough and peaks suggesting uniform returns.
Maximum Drawdown
It’s the quote worth a percentage figure that you may share with an investor. It can be very effective in uncovering the risk appetite of a trader depending on his strategy. For instance, if you have $200,000 in your account initially, out of which you lose 50%, then your account should reflect a drawdown worth 50%. Max Drawdown is a historic representation of the continuous loss experienced by a trader. It is crucial for every investor as it unravels the improper managing of risk on the part of a trader. Such traders don’t project a sound option for investment.
Winning Percentage
Being an investor, you shouldn’t overvalue this metric, although it’s quite useful. Winning percentage depicts the percentage of trading moves won by a specific trader. The win percentage doesn’t mean anything if his money management isn’t effective. Even a couple of losses can eat into his profits.
Trade-by-Trade Analysis
If you’re a serious investor, you may choose to download the entire history of your preferred trader for evaluating his trading style and strategy. You must identify trading outcomes that amounted to huge losses. Also, find out if the trader tends to stick to a specific position unnecessarily. It might help you figure out which of your choices are inefficient in creating a proper risk management strategy.
Conclusion:
For those that are looking for new avenues to invest money, social trading yields great opportunity to explore appropriate options. Some risks are involved in these types of trading as it goes with all other types of investing. An investor can choose a particular trader and copy his moves, which, in turn, help him minimize the trading risks. Besides, every trader may consider his risk settings and customize it for matching the risks with his entire risk appetite. That’s why social trading is so effective in delivering impressive returns.
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