What was your first impression with Social Trading?


#1

Social Trading has been on the rise in the last years, and it’s something the all industry is keeping an eye on, with companies like eToro and ZuluTrade leading the race.

What was your first impression when you discovered Social Trading?
What were/are your doubts/questions?
What do you think today?

Let’s “brainstorm” the subject with doubts and questions, and see where we need further threads to be opened.


#2

My first impression was “why would anyone use that?”

In the past year I’ve worked with many social trading networks and found a few things:

  • Many of them are made for beginners. Kind of like investing training wheels
  • They are fighting for the loyalty of millennials who have no money right now but will be the brokerage industry’s most profitable customers in 25 years.

Doubts:

  • How do all of them differentiate themselves?
  • Why would I chat with my friends on a social trading network if we could just chat on Facebook or WhatsApp like we usually do?

TradingView is an interesting case, because its social features are secondary to its charting tools. Kind of like the Bloomberg terminal for pro traders: they got hooked because it had amazing charts and analysis. Because they were already using the product, they used the chat feature as well.


#3

Good morning @henry.

Your good point brings me to one of the first doubt I had, which was more about terminology.

Today we call “Social Trading” any form of investment in which users have the chance to interact with each other.

Based on this assumption there are at least 3 main categories in my opinion, with substantial differences:

  • Mirror Trading: I copy the trades of a computer program
  • Copy Trading: I copy the trades of another trader
  • Social Trading: I do one of the previous (or both) and I have Social features to play with (feeds, comments, likes, etc)

What you are reffering to, in my view, should be called Social Analyzing :slight_smile:

All this to say… still today we don’t have exact borders that identify what is Social Trading and what is not.


#4

Social trading platforms bring together the “people” and the “traders”.
The people are looking for Alpha by using the Three ways that @filippo_u described above.
The “traders” are looking to obtain a Track Record (performance) and also to manage money (from the crowd). At Daily Fintech we call these traders, the Micro-Managers.

Some of the existing platforms were setup from the the start, by design for the “people” and the others to serve “the micro-managers”.
@henry TradingView that you mentioned, is clearly in the second category.
Quantopian, the crowdsourced hedge fund, is a very special case.

Copy and mirror trading platforms like eToro, Zulu Trade, Darwinex; are designed first for the "micro-managers"
Equity Thematic investing marketplaces like Motif Investing, and Wikifolios, too.
Social research platforms like StockTwits, investFeed are first thinking of the “people” = the investors.


#5

Really nice explanations @Efi.

I really like the “Micro-Managers” definitions.

I used (and still do it) to call everyone “Signal Provider”, but the reality is that the entire sector is evolving from “just providing signals”, to actually manage others peoples funds.

This change has been noticed also from authorities of course, as we can see from the MiFID II update that touched Copy Trading regulations (more details here )


#6

@filippo_u, Is social trading really on the rise ? The idea has been around for at least 5 years.
The concept seems to be limited to the handful of brokers.

I would agree with your premise if you include the likes of Motif Investing - the difference is Motif allows you to copy somebody else’s compositon of the portfolio, rather than to provide the specific buy and sell signals.


#7

Good morning @m.trepka.

Sorry to be so late on the answer.

We can see this matter from an “awareness” point of view. This is the chart of the interest on the keywords “social trading” and “copy trading” searched on Google in the last 10 years.

It’s clearly an uptrend.

Also, during this 10 years we have seen that almost any new forex/cfd broker was including social trading services in its offer. Plus, also old big brokers have implemented this type of services (FxPro to name one, with the SuperTrader).

This being said, I’d personally like to see some clear economic data showing how and how much the whole Social Trading sector has grown in these years. I haven’t find any at the moment, in case I’ll find some I will share it here :wink:

I personally don’t know Motif Investing, but I know Peeptrade, and based on what you say, they look very similar.

Best regards


#8

Thanks @filippo_u for the link to MIFID2 and Copy Trading; that could drive change to Micro Asset Managers.

@AL.of.InvestGlass love to get your take on this.

Re terminology, I find “social trading” to be uninteresting. It is not actionable, gets spammed too much and there is no real differentiator from just chatting on social media. Having said that, I find Seeking Alpha has improved recently. I also think the ad model is flawed.

To me Copy and Mirror are the same. Whether I copy a person or a computer algo matters less than the return (the latter was programmed by a human).


#9

Copy/Mirror/Social could all fall under the broader and very significant category of Crowdsourcing investment research, ideas, reccomendations, portfolios, financial structures etc

When you start thinking of it this way, then you realize that “social trading” from brokers or Fintechs will be able to gain significant traction when it becomes integrated in a broader offering. Pay attention to the bridges being built by StockTwits for example, with Robinhood and OpenFolio.
Read more here https://dailyfintech.com/2015/12/07/from-the-vanguard-effect-to-the-robinhood-blockchain-effect/


#10

Where does Marketfy fit into this? I follow the 420Investor maven there closely and I used to follow the SecretCaps maven until he became some kind of a professional hedge fund guy and left Marketfy.


#11

Hi @dailyfintechrocks.

I just discovered Marketfy thanks to your comment and had a quick look at their website. If you can automatically copy someone else, I would say it’s a copy-trading/social-trading platform with a pay-per-month model.


#12

No automatic trading stuff on Marketfy. What I think makes it work so well is that:

  • it uses a paid model with no free access at all

  • reviews and ratings of each “market maven” are gathered and displayed by Marketfy, not by each individual maven, so they’re unfiltered

For me it’s worked extremely well as a source of trusted due diligence research for fundamental analysis. Research like that is extremely time consuming and this model seems to work for outsourcing it.

Has anyone been able to find another method for outsourcing that kind of research?


#13

@filippo_u yes I think that is the big shift. We have had signal providers for a long time, kind of like a more modern and much better version of the newsletter. Micro Managers run in platforms and the big change from what we normally call Managers is that Micro Managers build a track record first (by trading with their own money on the platform) and only then get investors who want to follow/copy/mirror these trades. They get a share of profits generated via the platform. That reverses the process of the Traditional Asset Managers who raise AUM first and then start trading. As Micro Managers have minimal overheads, they don’t have to charge an AUM fee. That is disruptive to the Asset Management business.

I don’t like the term social trading. It sounds like calling Uber part of Sharing Economy.


#14

@m.trepka My problem with Motif is the low payout to the creators. I prefer a platform where I create thematic basket of stocks (a “motif” in their lingo) and trade on that and if other investors follow/copy/mirror I get a share of profits as a Micro Manager.