Before now, forex traders made their decisions using analyses, signals, and strategies that novices could not understand. So, only experienced traders were able to make profits consistently. But all that became history with the emergence of social trading.
Ever since the first set of traders to hop on the bandwagon of social trading recorded huge success and profits with minimal effort, the model has become all the rage in the forex trading world — especially because it allowed inexperienced traders to easily take their own share of the forex market pie.
While the multiple upsides of social trading has become common knowledge, most traders are unaware of the risks that come with it. In this article, we’ll be discussing some of these risks and how you can prevent or control them as a forex trader.
Let’s dive right in!
Forex Broker Problems
Your choice of forex broker could make or mar your chances of making profits from social trading. So, to avoid having your fingers badly burned, you need to do some checks before creating a forex trading account with any broker. Ideally, you should run away from any broker with the following:
- A minimum lot size that is too high
- Trading signals involving instruments that you can’t trade
- Highly conservative call and stop-out percentages
If you find a broker that is safe from these downsides and that offers other trader-friendly benefits, then consider pitching your tent with them.
Unreliable Signal Providers
Since social trading basically involves copying the market moves of more experienced traders (that’s why it’s also called “copy trading”), it goes without saying that your signal provider must be highly reliable.
Erratic signal providers can hurt you in many ways. They could discontinue their signals without notice, leaving you hanging and helpless if you have no backup plan. They could suddenly change their trading strategy into riskier or more aggressive ones. And they could be stopped out by their own broker in the event of a large drawdown.
A good way to identify reliable signal providers is to dig into their history. A smarter approach is to search the web for reviews about them, as this can help you gather a lot of helpful information about them.
Just so you know, there are multiple technical risks that could affect your chances of successful social trading. And it doesn’t matter whether you use the best broker or signals provider.
A common technical problem is sudden disconnection of trading signals due to delayed or non-payment of monthly VPS (virtual private server) fees. Another is when your account falls out of sync with your trading signals, and you’re unaware of that. Sometimes, too, the VPS could go down and fail to restart afterwards. The problem could also come from the trading network server — for example, when it goes down during trading hours. And worst, your VPS or trading account could get hacked.
That’s not all, though
We will always admit that there are far more risks attached to social trading, but we stopped on these three because they are the commonest and the easiest to avoid.
Now, how do you protect yourself from these risks?
Firstly, choose a forex broker that is reliable and reputable. Your ideal forex broker is one that offers a not-too-high minimum lot size, provides trading signals that you can benefit from, and prevents premature stop-outs by setting friendly percentages. To make the digging task easier for you, we have a point-blank recommendation: JustForex! We’ll leave you to research more about them.
In addition, use a reliable trading signals service such as MQL5, which is now included in Meta Trader 5. This service gives you access to a large pool of highly trusted and carefully vetted trading signal providers. MQL5 is easy to use and it doesn’t charge any commissions from your traded volume.
Finally, before choosing any product or service that you would need to trade forex, check the web for reviews by those who have purchased and used that product or service. This will help you avoid lots of mediocre options.