Social Trading vs Copy Trading
Can you get big returns without doing hours of research? With copy trading and social trading, it may be possible. See how they compare in this guide.
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- eToro - Best for Crypto
- Public - Best for Stocks and ETFs
- ZuluTrade - Best for Forex
- Collective2 - Best for Riskier Traders
Social Trading and Copy Trading are investing strategies that involve observing or following other traders.
These methods have a lot in common, but they aren't the same.
In this article, we'll break down the differences and similarities between Social Trading and Copy Trading. Plus, get the pros and cons of each, and learn which platforms offer these features.
Overview: Social trading vs copy trading
| Social Trading | Copy Trading | |
|---|---|---|
| Time Investment | Moderate | Low |
| Best For | Beginner to Intermediate Traders | Beginners |
| Legal in US? | Yes | Yes |
| Benefits | Gain experience and connections | Avoid newbie mistakes |
| Disadvantages | Shady influencers can be hard to trust | Won't gain much knowledge of good trading |
What is social trading?
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Social trading is a feature offered by some investing platforms that combines social media and investing. It usually allows users to:
- Follow other traders
- Track other traders' stats
- Get notifications of other users' trades
- Communicate with other traders
Different platforms approach it slightly differently, but they all have a focus on collaboration and community. Many offer chatrooms or public "walls" to leave messages and talk strategy.
While social trading can be used for stocks and crypto with popular apps like eToro, it is widely used among Forex traders in particular.
If you're new to investing and want to learn from other investors, social trading is a good way to do it.
Social Trading Pros & Cons
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What is copy trading?
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Copy trading is a subset of social trading that allows users to mimic the trades of other investors.
While social trading lets you see other traders' investments, copy trading means that your account will make whatever trades theirs does. If they buy, you buy. If they hold, you hold. And if they sell, you sell too.
Copy trading can be a lot more hands-off than social trading. Many platforms provide a list of top traders, with personal risk scores and historical returns. You could potentially pick one or more traders to copy and leave the rest to them.
This enables you to trade beyond your expertise—which is, of course, the goal of copy trading. But you also take on the risk of whoever you're following. For that reason, it's important to monitor your account, even if you don't intend to trade yourself.
Copy Trading Pros & Cons
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Social vs copy trading: what's the difference?
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With social trading, every decision is your own. This makes it ideal for those who want full control. There may be more of a learning curve, but you get to choose what risks you take, and for better or worse, you're responsible for your trades.
Copy trading may be ideal if you want a hands-off experience and are okay with letting other traders "do the work."
| Social Trading is Best for | Copy Trading is Best for |
|---|---|
| Beginners who want to learn with a community | Beginners who want to copy more experienced traders |
| Hands-on traders who want to make their own choices | Hands-off traders who want to leave decisions up to others |
| Rational investors who want to develop a trading strategy | Emotional investors who tend to make rash decisions |
| Experts who want to share expertise and build a large presence | Experts who want to earn commissions when others copy them |
Copy Trading has the potential to be profitable, just as all investing does. But it comes with the same risks, too. No copy trader can guarantee future returns because no one can predict the market.
However, experienced traders with a successful track record are more likely to make wise decisions than inexperienced ones. If you're looking for a hands-off way to trade beyond your expertise, copy trading is a viable option.
Is copy trading a good strategy?
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Copy Trading can be a solid strategy for new investors or for those who want a hands-off approach. Plus, most platforms incentivize popular traders to perform well, and even reward them for getting more followers.
And, of course, people are most likely to follow the traders with the best track records, meaning that popular traders will have a history of successful trading.
The one problem with copy trading is the same problem that you run into with any kind of investing: It's very hard to beat the market.
People certainly do it, at least for a period of time. But consistently making money through investing isn't easy, and carries the inherent risk of loss.
The traders with the greatest potential to make you a lot of money quickly are also the ones with the greatest potential to lose you money quickly. Because of the performance differences between risk-averse and risk-seeking traders, it is nearly impossible to judge copy trading as a strategy on the whole.
The higher-risk traders you follow, the more like gambling it becomes. If you decide to copy traders with less exciting returns but lower risk scores, then you are more likely to have a positive experience over the long term.
Social Trading and Copy Trading Platforms
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Interested in trying copy trading or social trading? Review the platforms below to see which one suits your investing goals.
1. eToro - Best for Crypto
eToro
Pros:
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Our Review: 
Copy Trading & Social Trading
eToro is a popular social trading platform based in the UK. With over 30 million users all over the world, they're currently limited to trading cryptocurrencies, stocks and ETFs in the U.S.
In other jurisdictions, they also offer stocks, commodities, ETFs, Forex, and CFDs jurisdictions.
eToro is best known for their CopyTrader program. It allows users to mimic the trades of other investors, who are ranked by rate of return and given a risk score between 1 and 10.
They also offer social trading features, such as public feeds, where users can interact and viewable profiles where they can monitor important stats.
eToro also offers a range of educational content. They provide market news and analysis, guides, and a free demo trading account that lets you practice trading $100,000 in virtual money.
Securities Traded
- Cryptocurrency, Stocks, ETFs in the U.S.
- Stocks, Commodities, Forex, ETFs, CFDs, Indices internationally
Deposit $100 and Get $10 from eToro USA LLC
- Sign up for an eToro account
- Deposit $100
Minimum Deposit: $100 in the U.S. After your first deposit, the minimum deposit requirement in the U.S. is just $1.[1]
Available on desktop, the App Store, and the Google Play Store
2. Public - Best for Stocks and ETFs
Social Trading
Public is a New York-based investing social network that focuses on stocks and ETFs. Their goal is to make investing accessible by offering fractional shares of expensive stocks and promoting financial literacy.
The app lets users see what others are trading, as well as who is buying or selling what stocks. Users can also follow investments with curated themes, such as The Crypto Revolution, For the Win! (gaming and eSports), Women in Charge, and Growing Diversity.
It's free to download and use, and trading is commission-free.
Securities Traded
- 3,000+ fractional stocks and ETFs
Minimum Deposit: No minimums
Available on the App Store and the Google Play Store
3. ZuluTrade - Best for Forex
Social Trading
ZuluTrade is another popular social trading network, based in Athens, Greece. Their focus is on Forex, though they offer other instruments to trade as well.
Users can follow other traders who are ranked by performance, stability, behavior, and outlook.
One of their more useful features is that they'll present combos of traders they think you ought to follow based on your preferences.
ZuluTrade is available in the U.S. and countries all over the world.
Securities Traded
- Forex, Cryptocurrency, Stocks, Commodities
Minimum Deposit: $200
Available on desktop, the App Store, and the Google Play Store
4. Collective2 - Best for Riskier Investors
Copy Trading
Collective2 is a U.S.-regulated company based in New York.
Users start by selecting "strategy managers," what they call copiable traders. After connecting their brokerage account to their account on Collective2, users are then able to let their chosen strategy take the wheel.
Collective2 charges monthly fees, unlike some of the other social trading apps that are free to use. Their minimum deposit is also fairly high. It varies depending on which strategy you select.
Strategy managers on Collective2 tend to favor riskier trading strategies, so it's particularly important to consider how much you invest on the platform.
Securities Traded
- Stocks, Options, Futures, Forex
Minimum Deposit: $5,000 - $100,000
Available on desktop, the App Store, and the Google Play Store
Is copy trading legal in the U.S.?
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Yes, copy trading is legal in the U.S., but it is subject to stricter regulations for U.S. residents than those in other countries. This is due to the Dodd-Frank Act of 2010, which has two primary rules that affect copy traders:
- You are not allowed to hedge trades by opening contrary positions in the same asset (such as a sell position in an asset you have a long position in, or the other way around) without liquidating the original position either fully or partially.
- First-in, first out (FIFO) is a rule that requires traders to liquidate multiple positions of the same asset in the same order they were taken, starting with the oldest first.
The existence of these rules in the U.S. but not in other jurisdictions makes it legally risky to copy traders from other countries.
If you copy a trader who is not bound by these rules, and they make trades that violate them, you may be held accountable even for trades that were executed automatically.
For this reason, the safest practice for U.S.-based traders is to only copy those who are also in the U.S.
Bottom Line
Social Trading and Copy Trading are both viable options for investors of all levels of expertise.
Whether you're hoping to get to know fellow traders, discuss the merits of your strategies, learn more about investing, or just want a hands-off approach to trading without hiring a financial advisor, there are options for you.
When choosing a social or copy trading platform, be sure to consider important factors like local availability and whether the assets you're interested in trading are supported.
Beyond that, useful things to keep an eye out for are fees, security features, the size of their user base, and the minimum deposit required to trade. No matter what your needs are, there's a good platform out there for everyone.
References
- ^ eToro. What's the deposit minimum? , Retrieved 03/12/2024
Jeremy Harshman is a creative assistant at CreditDonkey, a crypto comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.
Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 51% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
This communication is intended for information and educational purposes only and should not be considered investment advice or investment recommendation. Past performance is not an indication of future results.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
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