Social Trading! Fund managers get the Web 2.0 treatment
Those brave enough to tolerate the constant noise of social media site Twitter have found an online trading community full of tips, tricks and ideas on investing. But have you ever wondered what it'll be like to see what trading positions the people you follow have? Better still, imagine if you could easily have those same positions, benefiting from the same returns… and losses.
Well, social trading might just be for you.
Described as a cross between social media and an investment fund, a growing number of spread betting operators and brokers are adding these social trading platforms to their range of services. Online currency broker FX Pro is set to launch a "Super Trader" platform this autumn after similar offerings from FXCM Europe and Gekko Global Markets.
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"We are breaking down the barriers that small people have in accessing the big investments managers. And also allowing small investment managers to come into the space," Akshay Kapoor, business and product development director at Gekko Global Markets told CNBC Wednesday.
Brendan Callan, CEO of FXCM Europe told CNBC that social trading simply means investors can just click, follow and replicate the positions of successful market players. There are two different types of social trading platforms on the market, he said, ones that systematically allow you to follow investors to seek returns, and ones that allow you to use discretion by enabling you do dig deeper, do more research and be part of a trading community.
"We're all for people to get excited about trading and actively participate in the markets," he told CNBC.
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In Australia, OpenBook (eToro) is the most widely used network along with other platforms such as ZuluTrade, myFxBook, Currensee and Tradency. Four out of ten FX traders in the country use social media for their trading, according to the latest research by Investment Trends, but stats from back in March show that only six per cent of Australian FX traders say they follow other traders on social trading sites.
Both Callan and Kapoor underlined that there were still stringent checks and risk management strategies in place before an investor can be added to its platform, which then enables smaller clients to follow them. The incentive for investors to allow an army of followers copying their trades is cash, Callan said. FXCM Europe awards prizes to investors with winning risk-weighted returns.
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"Clients lose money because of two reasons. They take too much risk, they trade too often. So, what we're trying to do is to allow clients to trade with very low leverage, so follow a different kind of asset manager, and allow them to trade for the long term," Kapoor said.
"It's democratizing asset management."
By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81