Follow trading leaders using social networks
THERE’S plenty of cheap talk on social media’s bright future and its potential to turn friends and followers into profit. However, thus far, returns have failed to live up to the hype. Except in forex trading, where social networks like Currensee and eToro allow you to not only follow and interact with other traders, but also copy them – mimicking the trades of the most successful traders on the internet.
Currensee works off the social network of its traders. After due diligence, the chosen few – of the 8,000 members – are selected to become Trade Leaders who can be followed individually or as part of a broader portfolio of forex traders. So far, $12m (£7.5m) has been invested in its Trade Leaders Investment Program since its October 2010 launch – increasing four-fold in three months. Trade Leaders earn 20 per cent commission from the profits of their followers, while Currensee charges 2 per cent. Crucially copiers only pay commission to traders on the basis of profits across their whole portfolio.
In contrast, eToro doesn’t charge fees. Instead, chief executive Yoni Assia says it relies upon a different reward system for its top traders, namely recognition. He says it is underpinned by basic human nature and people’s desire for recognition, although he is in the process of devising incentive plans based on the number of traders’ followers.
With in excess of 1.5m users in over 130 countries, eToro traders use its trading platform, while with Currensee, chief executive Dave Lemont explains you can use any platform and they will execute the trade on your behalf in under one second.
For many, copycat trading might be the first rung on the ladder to becoming a proficient trader, or investors might prefer to put their money into traders on the basis of trust and historical earnings. In a world where investors are queuing up to throw money at any investment that isn’t correlated to other assets, being able to invest in foreign exchange is a revolutionary opportunity. Lemont points out the performance of Currensee’s 17 Trade Leaders is completely uncorrelated to the stock market. It also opens up foreign exchange markets to retail investors without the need for expertise – although this would no doubt help.
Interests in both systems are aligned between followers and the followed. The leaders in both networks benefit from either financial or psychic profits. It is hard to know which will prove to be the most successful, but either way the market in socially networked traders looks set to continue to grow. In fact, because of the data and information that can be garnered from social networks, Assia believes “social trading will eventually take over traditional trading.”