Comparison of the Best Social Trading Providers 2023

Forex trading is more popular today than stock trading because of the faster price movements. However, many investors are afraid to invest in this market due to a lack of experience. With social trading, however, you can simply copy the trades of the most successful traders and invest your money without special knowledge.

In our test, we quickly IQ Option the best social trading platform. The reason for this was the very good combination of trading offer, bonus, demo account and beginner-friendly operation.

Find out more about social trading now or choose your platform directly from our top 5!

IQ Option	Go to the test report	Currently no bonus offer	Go to the page
Plus500	Go to the test report	Currently no bonus offer	Go to the page
Trade.com	Go to the test report	Currently no bonus offer	Go to the page
Ovalx	Go to the test report	Currently no bonus offer	Go to the page
Admiral Markets	Go to the test report	Currently no bonus offer	Go to the page

This is what is behind the term social trading

Social trading is part of a development that now affects many areas of our lives and can be summarized under the keyword Web 2.0. For example, relationships between companies and customers are no longer conceived as one-dimensional from company to customer, but increasingly as an interactive exchange. This development is also evident in the area of investment and financial advice. While it was completely natural until about ten years ago that questions about the right financial investment were mainly discussed together with a customer advisor of the bank, the potential investor now has many other sources of information and, above all, exchange opportunities available to the potential investor due to the possibilities of the Internet. This has significantly broadened the knowledge base available to individual investors with just a few clicks. As much as this wealth of information is to be welcomed, the challenge for the investor to filter out the right strategy for him from this sea of information, knowledge and possibilities is just as clear. This is exactly where the idea of social trading comes in. Instead of paid consultants dependent on the respective institutions, this principle ideally relies primarily on the intelligence of all investors.

One initial idea is that all investors can potentially benefit from each other with their individual strategy in principle. Basically, two groups of investors meet. On the one hand, there are the more experienced, sometimes also professionally active investors, who are looking for followers with their respective strategy. While the first group is talking about top traders or so-called signal providers, the passive investors are followers. On the other hand, there are simple investors who are looking for suitable patterns and strategies to which they are oriented. Both sides find each other on platforms on the Internet. In addition to the function of bringing the top traders and the followers together, many social trading providers also see themselves as communication platforms. This means that investors can discuss with each other or with top traders. In the meantime, a whole series of different providers with a specific orientation has established themselves. We explain what is important when choosing the right provider and what should also be considered in relation to social trading.

Background Information - What is important in social trading?

However, before going into individual specific facets of social trading, the basic principles and mechanisms should first be explained at this point, which the investor should know in any case if he wants to enter this segment.

The principle of social trading

In order to keep the principle of social trading in mind, it helps to first orientate yourself to the approach of funds. An investment portfolio is ultimately issued by a financial institution, in which investors can participate if it meets their expectations. Regular investment funds are actively managed, i.e. the fund manager(s) structure the compilation of the values bundled in the fund again and again in accordance with their assessment of the market situation. For this active management, the fund administration requires a fee, which is deducted from the actual performance of the fund. However, it often turns out that the performance of funds lags behind the market development, i.e. the development of individual indices. This leads to the legitimate question of the usefulness of an investment in an investment fund. Social trading is a serious alternative to investing in a fund. Here, successful investors also become fund managers, on which other investors can orient themselves. It is no longer just simple private investors who can be found as signal providers. Meanwhile, renowned business newspapers and seasoned financial market experts also offer their own portfolios. Compared to mutual funds, this form of passive investment is much cheaper for the follower, as there are fewer fees. However, this form is not free of charge. In addition to, albeit significantly lower fees, fees may also be charged on the performance achieved.

Social trading comes in different forms and facets

To participate in social trading, there are several ways for the simple investor to become a follower. On the one hand, this depends on the provider, but also on personal preferences. In the simplest version, the follower only tracks the information and activities of the signaler or signalers chosen by him and follows them in his own portfolio. This strategy is the most non-binding and the simplest, but it also has its pitfalls. In particular, it is not always possible to choose the same stock split as the signal provider, as as a rule, trading is not carried out with the same budgets. In addition, there is inevitably a time delay, so that between the buy signal and the reaction of the follower, small price differences can ensure that the portfolios of signaler and follower do not develop identically. Even though this simple form of imitating certain patterns of action is considered the original form of social trading, it hardly plays a role nowadays

Much more widespread, on the other hand, is the so-called automatic trading, also called mirror trading or copy trading. The trading strategy of the follower is completely linked to the activities of the top trader. This can happen in different ways. Some providers, such as ZuluTrade or wikifolio, act in this context as pure platforms that bring the two groups of investors together, but do not offer custody account management themselves. The follower must therefore have a separate account through which the transactions are executed. An agreement between the custodian bank, the social trading platform and the investor then establishes a connection between the signaler and the follower's custodian. In principle, the investor no longer has to worry about anything. In addition, there are also a number of providers from the field of social trading who also offer their customers custody account management, i.e. manage the money or financial products themselves. One of these providers is ayondo.

Providers such as wikifolio go one step further. In addition to the possibility of automatically copying strategies, wikifolio also issues certificates that reflect the portfolio of a top trader and also track his restructuring if there is a corresponding demand. The certificates are issued together with Bankhaus Lang und Schwarz and are therefore freely tradable on the stock exchange. The investor can track the success of the investment strategy of the top trader exactly on the course of the price of the respective certificate, since these are issued by default at an initial issue price of 100 dollars. In contrast to the classic copy trading variant, only the certificate is in the depot and not the individual values. This saves a lot of transaction fees at first. However, one disadvantage is the so-called issuer risk, which in the case of a bearer bond is always at the expense of the current owner. In concrete terms, this means that the investor who has the certificate in his custody account is left empty-handed in the event of the issuer's insolvency.

What else is there to consider?

Basically, the same rules apply to social trading as to investing in general. On the one hand, this means that high opportunities are synonymous with high risk. This results in some special features with regard to social trading. In principle, the investor can initially assume that a risk-minimizing spread has already been created in the respective strategies. This is true, but there are massive differences between the individual top traders in terms of their risk appetite, which the investor should deal with as closely as possible. In addition to broad and conservative strategies, which are primarily aimed at sustainable and long-term performance, there are also a large number of top traders with highly speculative strategies. In addition to the share, all other possible financial products can also be used. Individual trading platforms from the field of social trading have specialized in certain market segments. While wikifolio traditionally focuses on stocks, funds and indices, ZuluTrade has focused on highly speculative Forex trading. The provider ayondo, in turn, occupies the field of CFDs in the field of social trading.

All in all, the entire investment spectrum is also possible in social trading. Anyone who enters social trading should therefore first become clear about their risk appetite and their preferred trading strategy in order to choose the right provider based on this.

How does the investor recognize effective and reputable social trading platforms

In principle, one can assume with the well-known platforms that they act seriously. At least in the field of social trading, no case of fraud or rip-off has become known so far. However, the risks for the investor are on a completely different level. Since most companies in the social trading segment see themselves as a platform anyway and have nothing to do with the concrete management of customers' money, in most cases the responsibility for the deposits lies with the custodian bank anyway. The central competence of the social trading platforms, which is decisive for the investment, also lies in the support in the selection of the right top trader (s). Here, too, the providers pursue different philosophies. For example, wikifolio has tried to provide an extremely balanced search function that makes it possible for the customer to find the right top trader based on a wide variety of parameters. On the other hand, speculatively oriented providers rely primarily on the return achieved in a certain phase as an essential selection criterion and thus give the appearance that such a return can also be expected in the future. However, it is considered clear among experts that such a conclusion is inadmissible, especially when trading speculative products. Quite a few experts also see this type of social trading as a form of gambling. Even with the amount of the actual risk, some platforms deal rather marginally and, above all, put the enormous chances of winning in the foreground. However, investors should also know that the providers in social trading are not subject to any control and are therefore largely free in their risk appetite. Even if the platforms have formulated regulations and use the community as a controlling body, you are never immune from nasty surprises.

The most important principle should therefore always be to deal with the respective risk and to adjust the trading budget to be used accordingly. As an exciting admixture, any products are quite suitable. However, whether investors should entrust a large part of their money to a highly speculative top trader is by no means recommended, even in view of a dream return achieved in the past.

Who is Social Trading for

With all the risks that exist in social trading, however, one should ultimately consider this form of trading as what it is: a serious alternative to classic financial products such as funds or ETFs. However, due to the lack of control and the increased complexity of this trading concept, it is especially recommended for advanced traders who have already dealt with terms such as strategy and risk diversification in relation to their own financial investment. The basic prerequisite for successful trading is first of all that you understand the strategy of the top trader and choose it accordingly.

Even if intensive exchange is not necessarily assumed, this is certainly desired by the communicative aspect of social trading. In addition to the pure connection between top traders and followers, many platforms also provide communication options in the form of forums and online chats. In it, the players can exchange views on financial market issues. However, in order to have a say here and, in addition, to draw appropriate conclusions for your own strategy, previous knowledge is required.

Conclusion - Social trading as a good alternative for advanced traders

Social trading will establish itself as an integral part of the financial investment or spread further. However, it is not suitable for the mass model, since it is linked to certain prerequisites. This includes, in particular, a certain education of the investor in order to be able to assess trading strategies apart from the mere number of a return. It is especially interesting for investors who do not feel addressed by the conventional offers, but who, due to their life situation, cannot muster sufficient time resources for active trading around the clock. Here, the opportunity to follow individual or several top traders offers interesting and above all cost-effective alternatives. However, the fundamental principles of the financial market will not be able to be undermined with social trading either.