In an era when there are influencers (all types of influencers) all around the social media, people have this rush of adrenaline and the curiosity to try out everything which is out there.
Be it uploading their meals or renovating houses or trying our DIY’s or trying out popular trends!
For the limit that they have now following these influencers’ life almost every day and see people in their neighbourhood doing the same influencer chores.
Well, this curiosity with an exponential level of excitement is seen on the investment front as well!
This was a major surprise because who would want to try risky stuff with their hard-earned money!
But here more risk seemed in the risk of FOMO!
Fear-of-missing-out seems more powerful than fear of losing and hence the risk taking become completely justified!
These are not just one or two people out there but there is a whole community which exists?
Such investment related communities helps share portfolio among friends, analyse portfolios of different market experts, and supports you in investing your money in such portfolios?
What if the whole world goes ahead with this notion?
Wouldn’t you feel left out?
So are you the victim of FOMO!
As we dig deep this concept of Social Investing becomes more interesting.
In the current state, this type of Investing is so popular that there are platforms created to motivate and retain participation in Investing.
The first social trading platform “etoro” was launched in 2010.
And since then, social investing/trading apps like OctaFX, and public.com have flourished and have become popular.
An interesting fact, all of these platforms all outside of India, and none in the country YET!
Today, while we dig deeper into this topic, by the end I’m sure you would be excited enough to start social investing all by yourself and stop following all the social investing platforms.
What is Social Investing?
Social Investing is a form of investing that allows investors to observe the trading behaviour of their peers and expert investors and therefore mimic the expert strategy with their portfolio.
What is the benefit of simply copying someone else’s strategy?
Investors get the benefit to earn jointly.
How would one copy an expert portfolio strategy?
These platforms run on the principle of social media, they are essentially communicated, and there is an exchange of information with mutual help and professional partnership if asked for.
Investors have the liberty of copying others’ investments, which means they can allocate their funds in the same proportion as their so-called experts have done to their portfolios.
This is more of a traditional concept where seasoned trader posts their views and suggestions and come up with their market analysis.
To promote such views, Telegram and Twitter channels leave no stone unturned to their recommendations and add up all the spices.
The drawback of such a general concept is that any imposter might claim himself as a pro investor promoting himself on false biases.
Some investors mimic precisely what the seasoned investor said and might tweak it up a bit.
Do you think it is safe to go with Social Investing?
There are two more terms in the market which a similar to Social Investing but there is a slight difference between them.
Social Investing vs Copy Investing vs Mirror Investing
If you are an investor, you need to get certain terms right, this is because it might create confusion when such terms are used interchangeably.
Copy Investing is a form of social Investing where the trades are free of human interference and human behaviour.
Copy Investing is automated.
Here the assets owned by the user are based completely on the other Investor’s picks.
The only benefit is that the retail investor or the naïve investor is free from all the learning curve included and is able to start seeing some returns in a few secessions.
The only thing they might want to worry about is the proportionally of allocation when it is time to rebalance the portfolio.
Therefore, the total sum can be reallocated again in multiple asset classes.
This helps in reducing the risks thereby making the naïve investor testify to other pro investors.
Mirror Investing cannot be automated because the investment type is based on algorithmic strategies.
The naïve investor is compelled to pick from the list of trading criteria and come up with their own investment plan.
What are these criteria?
These benchmarks are based on investment goals, the investor’s risk tolerance and the asset class one is interested to go ahead with.
Mirror trading is basically applying traditional strategies from various pro traders into a portfolio and later coming up with a new hybrid customised one instead of replication the investments like the previous type.
Benefits of Social Trading
Let’s take a look at why social investing is a ‘win-win’:
Money for the beginners:
Naïve investors lose a great chunk when they enter the market.
With Social Investing, even the investors with no technical or fundamental knowledge and experience can start earning with the benefit of following the others.
Investors also have and good chance to subscribe to professional investors and replicate their investment patterns or strategies.
Grow and Learn opportunity:
In social investing, investors have the opportunity to study and learn from seasoned professional experts in this field.
This is a perfect win-win because along with gaining one is also learning.
Autonomy to Investing:
Automated Investing is trending nowadays, and when investors are confined to technology entering and exiting trades, they are stress-free.
Remember that in the case of social Investing, an investor has more autonomy on decisions related to each investment.
In summarizing, risks associated with investments is eliminated.
Social Networking Site Investing:
Investors across their experience, be it naïve or pro investors engage through social investing platforms, therefore leaving space for multiple opinions on a specific investment that are thoroughly analysed before executing.
The majority of seasoned investors create their individual channels on Telegram and post their suggestions there.
Such “so-called investors” who recall themselves as “pro” don’t really invest their money where had suggested to.
Which is not appreciated!
But due to strict norms and regulations, SEBI and other monitoring bodies have been regulating the social investing platforms to track investors and their investments.
Risks of Social Investing
Social Investing is time-consuming because there is an ocean of stocks to be analysed and another ocean of experts’ portfolios to be considered before selecting the “one”!
Investing through a social Investing platform could be much time-consuming!
What is the alternative?
Click here to know about Investing with Artificial Intelligence.
There is a high probability of missing opportunities because of the continuous study need for the considerations and because of the process being operated manually.
If the whole process would have been automated, then it could serve the process well!
What is the alternative?
Click here to know about Automotive Investing with Artificial Intelligence.
Social Investing is done in communities, and such communities tend to over-hyping even the smallest piece of news and spread rumours across the network.
Which created fear, and greed and eventually leads to panic selling.
Also in another scenario, if another pro-investor’s portfolio is overhyped, planning to invest in that might not be the best case because the risk tolerance which you possess and that of a pro-investor might differ.
How can I fix that?
Click here to know all about Risk in Investing.
Parameters to consider while Social Trading.
Let’s suppose that we found an investor with a good percentage return.
The next question one must ask is, are good returns enough to put your hard-earned money without even a bit of research?
Here are a few parameters which might help to you decide to start social investing or otherwise:
- Trader’s Credentials – Career, membership, experience, popularity
- Volume signals – Trades per month, the total number of trades
- Performance signals – Winning trades, winning months, the performance of the current month, the performance of the current year
- Risk signals – Risk profile of the trader
I’m a person not satisfied and not so sure about the idea of Social Investing, what do I do?
Aren’t you lucky!
Click here to read all about how Artificial Intelligence is the next Fund Manager.
Investing in the stock market itself is risky, and there is always a default risk of losing money.
Therefore, before investing, clarify your investment objectives and know your risk profile.
If you think you are well equipped to invest in the stock market, the market eventually has its own plans!
The only thing an investor can do is stay invested!
If you want more from your equity portfolio and want to explore the potential of AI in investing, there are platforms available that can take care of your equity investment.
You can check Jarvis Invest and start your financial journey. It is an AI-driven platform that helps you create your equity portfolio based on your risk profile and investment horizon.
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Until next time…