By Alexander Surminski and Marc P. Bernegger
Social trading is the latest buzzword on investors lips and is considered as a welcome alternative to traditional banking, which is often associated with high costs and a lack of transparency.
The numbers of social trading platforms are continuing to grow and now classic brokers are increasingly integrating communities, discussion forums, or allowing mirror trading within their own trading platforms.
While discussion forums and communities facilitate the exchange of information, the exclusive publication of trading signals still disadvantages the trader due in part to time delays from executing on the trade.
Mirror trading overcomes that by running highly complex processes in the background so it’s displayed in a simple manner for the user. Trading activities are executed automatically in real time on users’ accounts. In this way, every single trade is actually reproduced and the real-time execution on the account holder or signal receiver’s account is the identical execution price as the signal providers.
Some providers, such as the German social trading platform Ayondo (note: Alexander is the managing director of Ayondo), go so far in that trades will even be reproduced and executed proportionally onto users’ accounts regardless of the account size. The performance of signal provider and signal receiver corresponds exactly.
Even with trader’s activities being directly executed onto user’s accounts, the monitoring of selected traders and their strategies is an important task that lies in the hands of the user. It is possible to participate with reduced time consumption and less analytically intensive investment; however the responsibility still lies with the user.
For this reason, features such as the transparent presentation of strategy providers and traders are of particular importance. All trading activities should be seamlessly tracked and costs openly displayed. Settings for adjusting risk should be possible. Ideally, the provider should support the selection of the signal provider through extensive filtering options.
Social trading cannot escape the trend towards mobile platforms. As more providers now have mobile websites or apps on offer, users can track the developments of their investments from anywhere and can make suitable adjustments if required. This mirrors the spirit of self-imposed transparency and openness of social trading as a growing trend that will gain even more importance in the future.
About the authors:
Alexander Surminski, one of the leading experts in social trading, is the Managing Director of the Frankfurt-based social trading platform Ayondo, which was founded in 2009. Marc P. Bernegger is a partner at Next Generation Finance Invest, a venture capital firm investing in companies that are well positioned to profit from new megatrends in Finance 2.0. Find him on Twitter or LinkedIn.