Investors in social trading
Investors who choose to invest their money in social trading are known as social traders, or even as "followers".
Basically, it is precisely what they do, ie follow trading signals from operators in order to leverage their knowledge and experience on the markets. This does not mean that in order to succeed, the only thing a follower has to do is follow any operator at random, and with this you will gain huge profits every month. This is not investing, but rather tempting destiny. For this reason, the main networks and social trading platforms such as eToro have thousands of investors who have lost large sums of money and have never obtained profits because they do not take the time to learn how to invest properly in trading Social. Many of these investors are those who later say that they were scammed, that the only markets they serve are to lose, that the company deceived them or other similar claims with little foundation, when in most cases they are the only ones responsible Of the losses suffered.
A follower must first arm himself with the right mindset, and then with the correct knowledge. In this lesson we will see the main characteristics that a follower must possess to invest in social trading.
A follower is an investor who has decided to make his own money work for him.
First, a good investor invests only the capital that, in case things do not go as planned and lose the amount invested, would not hurt his financial situation. In other words, it never puts into play sums of money that could jeopardize the stability of its economic and financial situation.
On the other hand, a follower is aware of what it means to keep all the money in the bank. While this can give security, on the other hand it also means that all your money is deposited according to the value of a currency, and that the value of your savings, in any case, is subject to changes in the currency market. This does not take into account the effects of inflation.
For this reason, the diversification to some extent of the use of money is a good technique to increase financial protection.
Objective of the investor in social trading
What could be the purpose of a follower?
Here we enter a very relative field, because the objective of a follower investor is something personal and, above all, it should be clear from the beginning. One of the most common goals in the investment world is to achieve an annual return of 4% or 5% on investment, in order to protect money from inflation and maintenance costs. This is a very conservative and respectable goal.
With social trading, however, it is reasonable to have more ambitious goals. A follower knows that with social trading will take advantage of the potential gain experienced traders can achieve with their operations in the Forex market and with CFDs. The amounts of revenue that good operators can obtain are much higher than most alternative investment methods that currently exist. There is no comparison, and it is not necessarily true that with these traders or signal providers an investor will risk more, especially in comparison to the option of entrusting their own money to someone who invests that capital for him.
There are many incidents of people who have entrusted their own money to so-called "experts", and then, suddenly, they discovered that their money was simply lost. This does not necessarily mean that the money has been stolen, but perhaps only badly invested in risky operations.
Risk management
A follower, then, must know how to handle the risk.
A follower usually does not know what the exact trading technique a signal provider uses (if he knows, however, much better), but he must be able to understand what performance this strategy is capable of producing, and especially what the Risks to which it will be exposed. It is clear that the risks of a Signal Provider's strategy will be reflected proportionally in the follower investor's account that has decided to follow it.
A follower should always think that when he replicates the strategy of a signal provider, he first replicates the risks, and then profits. Investing this thought and thinking first about income and then, if it is the case, on risks, can be very dangerous, if not fatal, behavior for an account.
To make a comparison, we can say that being a follower investor is like being a fund manager and a portfolio manager. The sole subscriber of the fund will be you, and you will also be the one who will build the strategy and the portfolio.
As already mentioned, it is clear that you will be solely responsible for your money, and your options will determine the success or failure of your investment.
With social trading, the level of risk assumed depends largely on the investor follower, and above all, money is always present in an account belonging to the follower, which can check their status at all times and what suppliers Signals are doing without any restriction.
The operator manages the risk of first-person trading, and thanks to this responsibility, their earnings are much higher. The follower manages the risk in first person as well, but not the one that corresponds to the direct trading such as an operator, but through the management of the own operators that follows and copies.
That is why the profits of a follower investor in social trading can be much higher compared to other forms of investment.
The right investor mentality in social trading
Taking these responsibilities on yourself may seem unnecessary and risky if we think we can delegate them to another person. At this point, however, it is necessary to take another step forward with respect to the mentality. The dogma that every follower must internalize about money and investment is that responsibility is always his and only his. Always.
This principle applies even when you decide to let someone else manage and invest your money, even indirectly as in social trading. Those who could lose their money in reality would not be the managers, because by definition it is YOUR money that would be lost, not theirs. The investor can accuse them of everything he wants and in many cases he may be right, but he is the only one who has lost that money in the end.
The investor should never forget that the responsibility on your money is always and only yours. For this reason, social trading, which allows a direct and constant control of its capital, is advantageous from this point of view.
It is also true that liability can cost, because if the follower is not prepared to make the right decisions could take excessive risks and lose money.
When you learn how to handle this huge responsibility, you will also have access to the great potential benefits offered by the most experienced signal provider operators and you will be able to take advantage of their performance.
As we will see later, your first major responsibility will be to know the factors that characterize the style and strategy of the Signal Provider and learn how to analyze them.
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