In former days trading was dependent on the locations of customers, brokers and exchanges. Then the internet came along and made way for the online trading phenomenon. The advent of Web 2.0, Facebook and Twitter gave rise social trading. It is also the latest revolution of day trading.
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Scalping is a commonly used technique. It simply means that traders hold positions for a very limited time. Most day traders exit positions before the market closes in order to avoid unmanageable risks. Price gaps can occur between one day’s close and the next day’s opening.
Commonly used terminology in day trading includes “margin trading.” This basically means that they “borrow” money to trade. This can lead to huge profits, but also major losses. Buying on margin is very common. The interest rate is based on a broker’s call.
Originally when stocks were traded a trader would contact a stockbroker who in turn relayed the order to a specialist on the floor. The specialist then got hold of whoever was interested in the order, process it and write the tickets. This effectively transferred the stock. Brokerage commissions were set at 1% However, in 1975 it changed. This allowed brokerages to charge commission fees of their own. The lower commission fees lead to much better and more competition. It was also one of the first moves to allow the start of day trading. Electronic ownership transfer was the last step that made today’s online day trading possible.
A very important necessity for day traders is market data. Real data feeds are available. These come at a very low cost. Usually brokers require traders to make a certain volume of trades each day in order to cover the costs of these data feeds. The requirements aren’t high. Even a moderately active day trader can expect to meet the requirements. By meeting these requirements the data feeds essentially becomes free. More advanced data feeds are also bought some of the more experienced traders.Some day traders also buy complicated analysis and charting software. These systems vary in price, from a few cents to hundreds of dollars per month.
In the same way that social media connects people from all over the world, social trading allows one trader to copy the trades of more successful trades from around the world.
Social trading has a number of advantages. Firstly, it allows for the free flow of information between individual investors. Knowledge is power. It also allows a kind of Cooperative trading. Individuals can work together, pool funds, share their knowledge and divide research among themselves to achieve a common goal.
In essence, social trading is the process through which one trader relies on another for information to make a trading decision. The collective wisdom of a thousand is better than one. It is a network from all over the world allowing people to share knowledge, views and trades.
Social trading carries a risk of capital loss.