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Social Trading Methods - Pros and Cons

created SigTrader12 May 2017

In today's article, I am going to introduce Social Trading from the technical side - what are the different methods of Social Trading, what are the advantages, disadvantages and threats.

Social trading - available methods

To put it simply - Social Trading methods can be divided into two types:

Available only for the given broker,
Publicly available to a wide audience.

The former are managed accounts called accounts MAM / PAMM. The second is all kinds of signals sent via the Internet - MQL5, Autotrade, Signalstart, xSocial etc .. Both solutions have their advantages and disadvantages.

MAM / PAMM accounts

Advantages

Disadvantages

the biggest advantage is that it is an internal broker system, the risk of technical problems is much lower than in the case of signals copied over the Internet
no or very low slides
convenience and no additional costs. You don't have to buy VPS and check whether the VPS has restarted, the platform has not crashed / disconnected, etc.
some brokers choose only selected fund managers
in most cases, the fund manager receives a remuneration on the basis of High Watermark - only on the achieved profit. It increases motivation.

a given provider can be copied only with a given broker. MAM / PAMM accounts are often kept with brokers with inferior regulations.
limited access to the account or its total lack. Depending on the solutions of a given broker, you get either a preview of the account in MT4 or only a preview of the account in the broker's panel
no control over the account - you can not just close the open positions, just ask the broker for it
some brokers do not allow withdrawals when there are open positions on the account
commission for the manager charged as a percentage of profit, which with higher deposits can be much more expensive than the use of signals broadcast via the Internet.
often a high threshold to enter the investment.

The signals sent via the Internet are additionally divided into two categories:

subscription (signals MQL5, Signalstart)
with additional costs when opening the position (Autotrade).

Subscription signals

Advantages

Disadvantages

Freedom in choosing a broker. If the sender uses a broker with a higher spread than yours, you can achieve an even better result than yourself. In Tickmill, having very low transaction costs, this has happened several times.
A variety of strategies to choose from. This is the most popular social trading method at the moment, the choice of strategy is huge
Cheap. Signals typically cost anywhere from $ 20 to $ 50, and are occasionally more expensive. If you make a big profit, you don't pay% manager.
Any threshold for entering an investment, you can copy strategies even on your cent accounts

A variety of strategies to choose from. Broadcasters are not selected. Too many potential strategies can make it difficult to choose. In addition, beginners or those who are billed with accounts with a refund of several hundred percent per month may make a bad choice.
Possible technical problems. It is necessary to purchase a VPS, you have to check on an ongoing basis if everything works correctly. There are also failures of the copying technologies themselves, even the last MQL5 failure, when no entries have been copied for more than 12 hours.
The possibility of slips appearing, which can distort the results of the strategy.
Fee for the signal independent of the sender's result. It may happen that you pay a subscription for a strategy that will reset your account.

Signals with additional costs

Advantages

Disadvantages

Only proven, selected strategies
No fixed fees, everything included in the commission on the item

Fee for MyFxBook and the manager concluded an increased spread / commission. Depending on the broker, this will cost 1 to 1.6 pips extra. The results of the managers, as well as the Autotrade demo, are presented excluding these costs. This can significantly change the results of the strategy.
Works only with selected brokers
Possible technical problems. It is necessary to purchase a VPS, you have to check on an ongoing basis if everything works correctly.
The possibility of slips appearing, which can distort the results of the strategy.

Social Trading - Summary

There is no perfect method. Each of them has its pros and cons. If you value convenience, you cannot control VPS and platforms, and paying several dozen percent of the profit commission to the manager does not bother you, a MAM / PAMM account will be a better solution for you. If you can devote more time to Social Trading, you can analyze the supplier's history and choose the right signals, MQL5 or Signalstart are the source for you. However, if you want carefully selected strategies at the expense of larger commissions that may result in a worse result than with the manager, look at Autotrade.

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