A growing number of novice and professional traders are relying on social networks to share information and make trading decisions.
These social investment platforms are contributing to the further so-called democratization of finance, opening up to the masses real-time data and trading opportunities once reserved for big banks.
The platforms help to facilitate information and trading in forex, commodities, stocks and other areas.
Like many Fintech products, social investment platforms utilize existing technology, such as networking, ecommerce and messaging, to create new financial opportunities.
“It allows people with less understanding of the markets to see what more experienced investors are doing,” Yoni Assia, CEO of eToro, a leading social investment platform, told The Telegraph.
Social investment is quickly being embraced by millennials, those born between 1980 and 2000, who are used to online social networking in other areas of life.
In fact, social investment platforms are the second-most popular type of Fintech startups, after lending platforms, which are targeting millennials, according to a report from CB Insights.
It seems that the increased availability of these platforms, with new social investment options popping up all the time, has heightened the interest of millennials in investing in general.
Even coming off the end of the global economic slowdown, 45% of millennials report that they are more eager to buy stocks today than they were five years ago, according to a survey by BlackRock.
This method of investment is also popular because it feels more transparent than paying traditional wealth advisers for consultation, millennials reported.
One of the most highly used social investment tools is copy trading, which allows users to automatically have their money invested and traded just as that of these successful traders, capitalizing on their knowledge.
Depending on the kind of platform you are on, you could easily trade big stocks like Alphabet (GOOG, Financial), Apple (AAPL, Financial), or Barclays (BCS, Financial) with less capital due to the leverage provided.
In addition to the ability to carry out copy trades, communicate with others and have access to data, most social investment platforms have low barriers to entry, thanks to modern technology.
In most cases, users are buying and selling CFDs, or Certificates for Difference, which are derivatives that mirror the movement of stocks, currency, and other tradeable products.
This requires less money up front and allows for higher leverage levels than the trading of actual assets but allows users to tap into the same gains and losses on the markets.
Conclusion
In summary, the advent of social investment strategies is emerging as a real-game-changer.
At the moment, all that is required are investment capital and some basic risk management skills to help investors in determining how much money to invest per copied trader.
The bottom line is that social trading platforms are becoming a commonplace in the world of financial markets, and this has increased the number of individual investors by a huge margin over the last few years.
Start a free seven-day trial of Premium Membership to GuruFocus.
