Along with the growing popularity of prop trading and the increased number of its mentions in industry media, it seems that social trading may have taken a backseat and not been able to interest retail brokers. The question of its relevance has been raised in research, sometimes with controversial results.
A study conducted last year revealed that only 3% of the total traded volume was attributable to social trading. This figure warrants a closer look at the research to understand what trends it may indicate in the industry. As with any study, there is a context affecting the result, specifically the methodology used:
- Defining an object
Firstly, the results are influenced by the definition of social trading. A broad categorization of it, including chat platforms and mirror trading, may lead to an inaccurate assessment of social trading’s effectiveness. - Defining the sample
The study sample is based on the internal volume rank of the media, which may exclude brokerages that are out of the rank or brokerages with specific characteristics, such as those that have built their brand around social trading services.
Another interesting detail about the research’s results is the popularity of social trading. Despite the low traded volume, the study revealed that almost 38% of brokers offer some form of social trading. This surely indicates the demand and interest among brokers in providing these services.
The popularity of social trading also seems to contradict the reported percentage of its effectiveness. To gain more insight into these services from the traders’ perspective, let’s turn to Google Trends analytics.
It is worth noting that Google Trends has limitations as an analytical tool. First and foremost, the search interest it calculates is always a relative value, with the highest point in the search history set at 100 points. The interest level is calculated on a scale of 0-100 relative to this highest point for a selected region and time. All words and phrases in a search are taken into account without considering their meanings.
The global search interest for copy trading has been stable, and the overall trend has been increasing since 2020. However, in the spring of 2024, possibly due to a wave of conflicts between prop firms in the US and regulators, the interest in this type of trading reached an absolute peak of 100 on the Google Trends chart.
These trends suggest that more and more traders are looking for copy trading, and perhaps social trading’s future may not be as gloomy as predicted earlier.
When it comes to absolute values, the picture looks the same. The average monthly search volume for “copy trading” was approximately 49,500, while “social trading” garnered around 12,100 searches. This amounts to close to 740,000 annual searches for these two keywords. With more additional niche keywords, the total surpasses 800,000 searches per year. In spring 2024, “copy trading” peaked at 90,500 monthly searches.
Exploring the drop in social trading volumes
Social trading has come a long way since the previous generations of investors who gathered in social venues to exchange trading ideas. Today, technological advancements have made investment experts (signal providers) more accessible and provided brokers with a variety of social trading platforms to choose from.
But simply adopting new technology doesn’t guarantee an increase in copy trade volumes.
Before introducing new services, brokers should assess their audience and determine whether the signal-sharing approach suits them. They should also consider how to promote the new services in order to attract a wide range of clients.
Tatiana Pilipenko, the Regional Head of Business Development (APAC, UK, Americas) at Brokeree Solutions, shares simple rules to introduce social trading services.
- Don’t promote copy trading as a 100% return
Even professional traders with years of experience might have an unprofitable trade that will be copied to their followers. Therefore, promoting this service as the ability to get a 100% return is not recommended. - Don’t allow amateur traders to become signal providers
Before registering providers or making them public, check their proficiency and ability to deliver promised results. Low-quality signals harm your brand reputation and the services you provide. - Don’t leave your clients on their own
Continually educate your clients on risk management, which is available online but often neglected. This is how traders can protect themselves from unpredictable losses.
Once a decision has been made and the technology acquired, the broker should customize the new tools to integrate them into its existing infrastructure and ensure they meet their audience’s needs.
Therefore, proper setup and management are essential, and a lack of them could be a major contributor to the disappointing copy trading volumes experienced by some brokers.
What’s next for social trading?
Today, industry experts have turned their attention to regulations around prop trading companies, and changes in this area will also affect the social trading trend. However, these changes will not likely have a significant impact.
There are several reasons for this. The audiences of copy trading and prop trading overlap only partially. Moreover, some brokers are still avoiding potential reputational damage and do not offer prop trading services despite its growing popularity.
To capitalize on the interest in social trading, now is the perfect time to explore how an advanced social trading platform can benefit brokers’ businesses. Book a presentation to learn the features and advantages of Social Trading and how it may cover your brokerage’s unique needs.
