Social trading can be described as an activity that involves or facilitates interaction between traders with the goal of strengthening the crypto community. On the other hand, copy trading is an element of social trading that allows users to mimic the trading patterns of other traders, especially experienced or professional traders.
It’s helpful for industry players, cryptocurrency and blockchain professionals to understand why these concepts are different and how they are similar to one another. Not only do we want to understand these concepts better, but we also make explaining them easier to those who may be new to the industry.
What are the pros and cons of copying trades?
Understanding how copy trading works is not magic. After traders make a successful trade, they have the opportunity to share their trades with other users. If they choose to participate, the copy sellers can choose their copies.
There are benefits to both sides of copying a trade. In addition to the possibility of generating greater business profits by copying the practices of professional traders, copy machine traders gain knowledge and new technologies that may be useful to them in the future.
Those who choose to share their trades receive a commission, usually in the form of a percentage or share of income, every time their trade is copied. These incentives encourage and motivate professional traders to share their trades for copying by other users. In this context, the copy trade is a win-win situation.
This helped the practice of copying quickly spread. As more and more new traders join copy trading, they get more practice and become better traders. In return, they are more likely to share their success with copy sellers in the future in order to reap the additional benefits of the copy fee. However, you do need to take some precautions. It is no secret that many of those who use the transactional copy function are mostly amateurs. Due to their lack of experience, they could take unprofitable copy deals, which ultimately turned out to be unprofitable.
A common mistake that new copywriters make is that they quickly copy others, especially those who have a lot of followers. Traders with big consequences aren’t always reliable.
Why is social commerce so important to the industry?
According to Statista, the number of cryptocurrency users grew by 25% between the second quarter of 2019 and the second quarter of 2020, peaking at 50 million full-time. Thus, it is evident that more and more people are looking for new investment opportunities in the cryptocurrency industry, but most of these investors are beginners. Participating in social trading is the perfect way to start your cryptocurrency journey.
When traders share information about transactions or events taking place in the industry, they will have more information about the trade. They can even share ideas or ask questions about trading procedures to get opinion from those in the know.
However, the influx of newcomers puts the burden on crypto companies not to jeopardize the continued growth of the cryptocurrency community. Operators offering social trade should carefully screen vendors to ensure that they do not betray others or distrust the industry.
Knowing that they are using a secure social platform will give investors and managers more confidence and help build the reputation of the cryptocurrency sector.
What is stopping exchanges from becoming more innovative with social trading?
There is still a lot of work to be done with innovations in transcription and social circulation. Copies of trades were merged on only a few exchanges. However, this may change quickly, as stock markets can borrow innovative ideas from competitors without legal restrictions.
What the industry lacks and needs is a robust and comprehensive legal framework for intangible real estate that prevents exchanges from stealing the work of other players. Upcoming exchanges are particularly vulnerable to this threat.
However, some argue that the use of generic ideas has worked in the industry thus far, and any failure could create problems. The counterargument is that it takes commitment, dedication, and a lot of hard work to create something innovative, so laws governing this type of unfair competitive behavior are essential. Having strong intellectual property laws can encourage companies to be more innovative, and who knows, they can deliver unique innovations in social commerce that can bring society closer.