Ever since the beginning of Forex trading, traders have been basing their decisions mainly on two types of analysis which are technical analysis (the use of historical charts to guess the future direction of the market) and fundamental analysis (the use of economical news in the world affecting the market). In the early ages, trading was taking place physically in the bourses and trade centres, where the information was coming from the telephone and the TV, often with a lagging time due to the technology in that time.
Nowadays, most of the traders have left those places and are now trading from anywhere in the world, because the Internet has replaced the traditional bourses. There is no need to be in a physical location anymore. The information is coming faster than ever (think of Twitter and the Web 2.0!). And it’s what social trading wants to take advantage of. Traders and investors now are more transparent and share information about their activity, and that’s considerably improving the social experience of Forex trading.
OpenBook and CopyTrader
It’s a very new approach to Forex. eToro first democratised it in 2010 when it released the OpenBook, a Twitter-like activity feed giving a history of every trader’s positions, and the ability to copy their positions. It’s so far the best opportunity for beginners to learn and improve their returns on the Forex market, because they can now learn by example, follow experimented traders and stand on their shoulders. The OpenBook, for instance, gives you a real time activity feed about the traders who agree to share it (but most of them do) and let you follow them in two ways: either you can choose to copy manually each of their positions that you judge are worth, or you can automatically choose to copy all of their positions, and in that case it’s much more like investing your money in an investment fund. For each choice, you can of course define the amount of your positions, so that you can limit the risk.
eToro shows good figures as of the first six months after they released the automated system to follow traders’ positions, with an average 3 to 4 percents gain per month for the overall traders who have adopted the system. Compared to the 3 to 4 percents you can get every YEAR by placing your money in a savings account in your bank, this makes quite a difference). Social trading is still at its early months, but sounds promising and worth keeping an eye on it (which I will do, of course). More information can be found (in French language) on this site: Qu’est ce que le trading social?