For beginners, the foreign exchange (Forex) market is the most accessible place to start trading. It’s easy to understand, not bound by place or time, and the internet provides a wealth of information to get you started. There are also many innovative new platforms available for trading Forex.
First we need to talk about social trading in the Forex markets, then assess social trading binary options. These platforms make trading easier, but also come with certain risks.
Forex social trading
One of the most popular ways for beginners to get into the Forex market is through social or copy trading. Social trading takes accessibility to a whole new level. It allows you to copy the decisions of experienced traders. They know what they’re doing, after all, and you can benefit on their coattails.
Binary options
Binary options takes ease of access to a whole new level. With binary trading, instead of investing money in the trade itself, you bet on whether the stock or currency pair will rise or fall and earn money if you get it right. Now platforms allow you to use social trading when taking binary options.
While it sounds like a brilliant idea, it also can seem too good to be true. And, to a degree, it is. Social trading binary options is a good way into the markets. But there are some significant unseen risks which a successful trader needs to take into account.
The following are the biggest risks of social trading, both in the Forex market or through binary options, and how to avoid them.
Scams
When it comes to copy trading, scams are highly prevalent, especially in binary options. After all, binary and Forex trading can be a legitimate way to make lots of money, and it’s easy to sell that as a get-rich-quick scheme. Which is how disreputable brokers and straight-out cons get the better of the uninitiated.
Use the following indicators to avoid scams:
- ensure the broker is authorized and regulated by the financial authorities in your region. Unregulated brokers might legitimately try to make you money, but the legal risks and potential for mismanagement is just too high.
- they don’t promise millions. While you can make a lot of money through trading, any broker that poses as a get-rich-quick scheme is more than likely to rip you off.
- their data and indicators are accurate. When choosing a broker, do a simple check of whether the data they’re providing is consistent with reputable websites.
Trading styles unsuited to beginners
The concept of social trading relies on the assumption that experienced traders know what they are doing. But although this assumption is totally valid, it does not guarantee that their trades will work for you.
The truth is that every trader, no matter how experienced, goes through losing periods. They know this, and strategize accordingly. Unfortunately, these strategies might not be suited to you. An experienced trader may have huge trading capital, and their strategy relies on having enough in the bank to counteract big losses. On the other hand, when you face these losses, you might have nothing left.
The way to counter this is by doing proper research. Social trading does not work by blindly copying the most successful traders. You need to investigate the strategies these traders are using, and decide whether they are suited to you. You’ll find plenty whose trades will work for you, and these are the traders you should copy.
Conclusion
Forex brokers, as well as social trading binary options brokers, promise big results in a short space of time. While they can make you lots of money, you should be wary of brokers who promise too much. There are risks involved. Make sure you choose a reputable broker and that you don’t go into trading blindly.
If you do your due diligence, you can slowly build up a good profit while learning how to be an expert trader in your own right.