James Olden, co-founder of TopTradr, makes his case for how democratisation and innovation have revolutionised foreign exchange for smaller players.

Social trading is big business. The industry has seen huge growth since 2010, with the release of new platforms announced every month. Foreign exchange (FX) trading has proven a particularly popular market with social traders.

In the not too distant past, the foreign exchange business was a closed shop; the preserve of big banks who were able to trade huge volumes beyond the reach of even the wealthiest private investors.

Foreign Exchange

It’s a different story today: FX trading volumes have more than doubled in the last decade. It now provides the most fluid trading conditions of any market and is full of possibility. The extreme leverage of FX naturally makes it attractive; potential returns through short-term trades are high unlike other markets such as stock trading, for instance.

This explosive demand from retail forex traders has in turn contributed to a level of technological innovation that has benefitted the whole trading community, not only Forex.

That’s where social trading and mobile trading apps stepped in. The developments in financial technology made by FX brokers, mostly in trade automation, have helped to advance social trading. In this way, FX trading and social platforms provide the perfect marriage; the fluidity inherent in the FX market has proved a natural match with the real-time, responsive nature of social trading.

The democratisation of trading provided by social platforms has opened it up to criticism too, quite rightly, due to the lack of risk management that has plagued many inexperienced traders. In addition, that openness has exposed the industry to online cowboys and diminished responsibility through anonymity and a lack of accountability. The practice of copy trading- where a trader ‘follows’ and automatically copies all trades made by self-proclaimed ‘guru’ traders- has also received a lot of coverage, with the expectation that social trading platforms may soon face stricter regulation on this front.

The initial response of many brokers has been to focus on educating traders through free online resources and content marketing on their own platforms. Naturally, that education is a good thing. But it’s only one half of the solution. Providing better educational resources alone doesn’t prevent traders from simply copying trades. If copying a successful trader has proved successful at first, there’s no reason for a new trader to change their behaviour, that is until they crash and burn a few weeks later. At which point it’s too late. What’s needed is an incentive to improve trading knowledge in the first place and for the right reasons.

A unique incentive is exactly what TopTradr is aiming to provide to new traders, by scoring and rewarding them financially when they make consistently smart, low-risk and high yield trades. In fact, TopTradr was started as a response to this reliance on copy trading. I wanted to create something that I, as a trader, would enjoy using. I was sceptical of other platforms which promoted traders who made 500 per cent + returns on all their trades; it didn’t add up. I didn’t want to copy trades, I wanted to see how I fared against other decent traders out there.

It wasn’t so much about recognition for me as it was verification and validation of my performance. Furthermore, I think we understand what a lot of retail traders want, because we are our target market! To that end, we want to develop a platform that benefits and improves social trading as an industry.

As a retail trader, I’ve benefited from that earlier democratisation and innovation in the FX social arena and so it only seems right to try and steer the industry forward in the best way we can.

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Gary Beal