Thanks to key advances being made within the realm of fintech (financial technology), the term democratisation of finance has become perhaps the most important of all from a global-development perspective in recent years. But truth be told, the actual democratisation process can mean different things to different people. For some, it refers to the provision of basic financial services, such as new bank accounts, to previously unbanked and underbanked populations. For others, it means gaining access to more sophisticated financial services, such as trading and investing, that would have been previously unattainable.
But thanks to social trading, such services are now within easy reach of people all around the world, irrespective of their financial backgrounds or experiences with financial markets. As the term suggests, social trading combines trading with a social-media dimension. Through the power of online communities, it enables users to share information with community members about financial markets and trading. This allows other users to observe and replicate trades being made by the experts, thus enabling novices to potentially earn the same kind of returns that are being drawn by experienced traders.
As such, social trading offers less-experienced investors the opportunity to leverage the expertise of more knowledgeable and successful peers. Rather than providing an investment advisory or portfolio-management service, it represents a new and arguably safer way for new investors to obtain access to a multitude of financial markets and products and gain experience and understanding. In practice, investors typically do this by participating in copy trading, which allows investors to simply replicate the portfolios of top-performing traders who are already operating on the social trading platform. Indeed, copy trading can ultimately allow those without much experience—or with little time to spare—to leave all the tough decisions to the more successful “copied” traders. And given that it allows new traders to simply piggyback off the success of more skilled traders, copy trading has become hugely popular in recent years.
As for the most popular social trading platforms, eToro is likely the one with which novices are most familiar. By the end of 2019, the company had surpassed 12 million users located in more than 100 territories around the world. And by May 2020, that number had reached 13 million. eToro provides rookie investors with the opportunity to copy the trading strategies of leading traders on its platform.
But it also offers much more than that. “For those looking to improve their trading, eToro offers so much more than just a copy trading platform,” the company states on its homepage. “You’ll be joining a leading collaborative community of traders and investors—a place to connect, share, and learn. View millions of other traders’ portfolios, stats, risk scores, and more. Chat with them, discuss strategies…