New age social media networks such as Tiktok and Snapchat have become immensely popular with Gen Z. This coupled with the post-pandemic rally in both stock and crypto markets has led to the rise of social trading.
Due to the lockdown restrictions, there was a considerable increase in time spent by users on social media. In the pandemic, social media went from being a tool for being connected with friends to receiving daily news and investment tips. Social trading is the next wave in the sea of crypto markets.
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Day trading isn’t easy for novices
Trading in the stock or crypto markets (including Bitcoin) isn’t easy. It takes weeks, sometimes even months for a trader to completely understand the nitty-gritty of trading fundamentals. As per a detailed CNBC report, most day traders lose their initial capital and quit day trading in the first few weeks.
In 2017, professors at the University of California, Guanghua School of Management and Haas School of Business analysed the performance of day traders. They concluded, “the aggregate performance of day traders is negative, that the vast majority of day traders are unprofitable, and many persist despite an extensive experience of losses.”
Bitcoin bull run in 2021 showing how social trading could have had an impact on the market
Day traders rely on a number of technical indicators, movements and patterns. A significant majority of day trades are carried out in the futures and options segment.
These trades are highly speculative and carried out with the intention of completing an exit before the end of trading day. Most brokers allow investors to place day trades with margin and leverage. This lets traders open large positions with a small investment.
Leverage magnifies profits in a good trade but also leads to deeper losses in a bad trade. A significant number of day traders see their position squared off and margin liquidated when their trade goes wrong.
Investor frenzy in a post-pandemic market rally
Most of the world population was forced to stay home due to stringent lockdown conditions. For these masses at home, the Internet was a perfect companion. In the months to follow, a new bunch of YouTubers and social media influencers shot to fame.
Youtuber Biaheza started a series ‘Day trading Stocks to a Million’ on his channel. Before that, he would make TikTok videos of his trades and post them on the video networking site.
The viral content published by digital media creators caught the attention of lay investors. For these small investors, the stock and crypto market were a closed gated community and a tool by the rich to become ultra-rich.
But the vast availability of informative content around investing coupled with the low or zero brokerage offered by brokers enticed small investors. Finally having a chance to Invest in the stock and crypto market was seen and felt like a privilege by many.
According to JMP Securities analyst Devin Ryan, more than 10 million new brokerage accounts were opened in 2020. Robinhood which is the most popular broker among young investors was believed to have accounted for around 6 million of the new accounts.
Buoyed by the crypto rally, more retail investors jumped in to invest in the digital token market.
The dawn of social trading
The two most popular hashtags on TikTok around investing are #investing and #StockTok. The former one has more than one billion views on the platform. TikTok has faced its fair share of criticism for misinformation and incorrect market advice but it paved the way for social trading.
Robert Ross who goes under the username @tik.stocks is a senior equity analyst who has more than a decade of experience in analysing stocks. Ross is just one among hundreds of experienced analysts and traders who shared their knowledge with novice crypto investors in 2020.
In the late 90s and early 2000s, new investors and traders would read books and publications for knowledge. Fast forward to 2021, new investors watch brief videos on Youtube, short clips on TikTok, engage in discussions on Twitter and Reddit, and then pick their trading move.
Between then and now, the source of knowledge has changed but the idea remains the same. Every novice trader wants to understand and then replicate a profitable trade made by an experienced trader.
Dogecoin saw its value rise multifold as curious newbie investors brought the digital token anticipating a Bitcoin Esque rise. The phrase ‘going to the moon’ soon turned into ‘Dogecoin to the moon’ as the world watched the rise of social trading. Unlike hedge funds which charge a fee for managing money, social trading is largely free and open to everyone.
Novice crypto traders learning from social trading
The DTrade social trading platform makes it easier and simpler for novice crypto traders to learn and replicate the success of experienced traders. It allows seamless and live communication among its users.
Through a series of live and recorded videos, budding traders can learn the ropes of crypto trading. It also has the option to set up auto trade, a feature that lets you copy trades of another trader. The DTrade social trading platform is a part of Decoin digital token exchange.
New age social trading platforms will become the norm in 2021. They will replace analyst recommendations and predictions. Audio only social network Clubhouse which shot to fame in 2020 has hosted many discussions based on the topic of crypto investments. Clubhouse lets users create rooms where they can speak about a topic and engage in a conversation. If TikTok appeals to Gen Z, then Clubhouse is the platform for techies and hippies.
It cannot be denied that direct payments included under the stimulus package have played a key role in this rally. President Biden signed into law a new $1.9 trillion stimulus package which includes $1400 payments to American citizens.
Crypto analysts believe the stimulus could push demand for Bitcoin and other cryptocurrencies higher. In the 2017 crypto rally, investors bought Bitcoin in the hope of selling it at a higher price than the one they purchased at.
Today, investors see Bitcoin and other cryptocurrencies as an asset class to save their capital from inflation. In the coming years, social trading will become an even bigger phenomenon.
