The Best Free or Low-Cost Social Trading Platforms for 2020 • Benzinga

Social trading combines aspects of social media with online real-time trading in financial markets. The concept of making a fortune by copying other proficient traders from home has caught on like wildfire. Some people even say that social trading could be the best way to invest your risk capital in financial markets.

Anyone with an internet connection, a funded trading account and an associated social trading network can theoretically make some easy extra cash. Of course, the hard part is choosing a successful trader to follow. If you zero in on the right social trading platform, you can majorly impact your potential for profit.

Best Social Trading Platforms:

What a Social Trading Platform Does

A typical social trading platform consists of software that allows a network of traders to see what other traders in the network are doing in the market in real time. Other traders help inform your own trading decisions and you can look at their results to help you generate your own profits.

You can choose to copy or mirror good traders by replicating their trades in your own account.  A copy trader places the same trade as a copied trader, while a mirror trade is automatically executed at the time the copied trader makes a trade.

When the copied trader makes a trade, a social trading platform often automatically executes a mirror trade for the copying trader. Alternatively, it alerts the copying trader so he or she can decide to either copy the trade or keep track of the trade made by the copied trader.

For the copied trader, the social trading platform keeps track of all trades and compensates the copied trader for each copied trade. The level of compensation can vary according to the social platform’s rules and the copied trader’s pricing preference.

U.S. Restrictions

Many countries allow copy trading, though U.S. residents have extremely limited social trading platform options. This is because of strict restrictions on social trading imposed by the Dodd-Frank Act of 2010.

Two rules that now apply to U.S.-based traders have discouraged social trading platforms from accepting U.S. clients.

• You cannot hedge your trades. This means that you cannot open a sell position in an asset you have a long position in (or vice versa) without fully or partially liquidating the original position.
• The first-in, first-out (FIFO) rule. The FIFO rule obligates a trader to liquidate multiple positions of the same asset in the order the positions were taken, with the oldest liquidated first.

Both rules make copying or mirroring traders operating in assets you are also trading quite difficult if the other trader lives in a jurisdiction where hedging is allowed and FIFO liquidation is not mandatory.

You may take an opposing position to the copied trader in a given asset that would be considered hedging or you might decide to liquidate a position you took before the trader you are copying who established a similar position earlier, which would violate the FIFO rule.  

Some social trading networks manage to cope with these situations, but the best way for a copy trader to deal with the problem is to either have separate accounts or find traders to copy that deal in different asset types or instruments.

This way, the trades in your account would not overlap when you and traders you are copying take opposite positions in the same asset that would cause a conflict and violate either the hedging or the FIFO rules.  

Many social trading platforms and providers require that you have an account with an approved third-party online broker, such as FOREX.com. This is usually because they don’t offer online brokerage accounts themselves and cannot execute market orders for their clients.

What to Look for in a Platform

The safety of your funds is the most important single factor to keep in mind as you select a social trading platform. The broker you select should also keep your funds in a segregated account for higher security.

Agency Oversight

The platform you select should have oversight from a reputable regulating agency, such as the National Futures Association (NFA) in the United States or the Cyprus Securities and Exchange Commission (CySEC) in the European Union.

Track Record

Look for a successful track record of the traders available to copy. Social trading sites typically provide detailed statistics and historical analyses of individual traders and trading groups to help you determine which traders to follow.

Most social trading networks provide tools to select traders based on their win rate, maximum drawdown, pips earned and their return on investment (ROI). Once you’ve evaluated a platform’s traders, you can base your trading decisions on positions taken by a particular individual or group and/or you can have the trades executed directly in the trading platform either manually or automatically.

Choose Your Assets

After you select one or more traders to copy, the next consideration would be the assets or instruments the trader uses. Some trade currency pairs, others might prefer stocks, indices and/or precious metals.

Choose your minimum entry level and the size of your positions, set buy and sell limits and customize your interface.

Fees and Commissions

Management fees and commissions are also a key consideration. The amount charged by social trading networks varies between different providers who often have different fee schedules and commission schemes. Knowing your needs will determine what type of commission structure would best work for you.

Research the trader’s past performance to give you a sense of whether they are worth copying at all.

Ease of Use

Most social trading platforms offer customers a demo account so you can evaluate their platform, put traders to the test and experience social trading in a real-time trading environment without putting any real money at risk.

You’ll also want to be sure it’s easy to gain access to customer support services. Larger social trading networks tend to give more attention to clients and they typically provide access to their support staff during trading hours.

Our Picks for the Best Social Trading Platforms

As noted above, U.S.-based clients have limited choices with regard to social trading platforms. The platforms listed below either presently allow U.S. clients or are in the process of allowing U.S.-based traders to participate on their social trading platforms.  

Best Free

MQL5 Trading Signals

MQL5 is a signals service social trading platform designed for the MetaTrader 5 trading platform. The MQL5 platform and social trading network is free of charge, although if you wish to follow a specific trader, you may have to pay a signals fee that varies from trader to trader.

You must also link your MT5 account through your online broker.

The platform provides trading signals and automatic execution on any MT5 trading account after accepting an agreement to be bound by their terms and conditions. Traders are known as signal providers, and they also sign agreements to provide you with real-time access to information about the trades being executed in their accounts.

A vast number of signal providers are available and they vary considerably regarding whether or not they use algorithmic trading, as well as with respect to their risk profile, maximum drawdowns and ROI. Each signal provider’s returns can be examined on the MQL5 website, as well as their maximum drawdown and other important statistics based on their trading results.

MQL5 does not offer accounts or execute trades for clients itself, so trades can be performed manually after the signal is given or automatically via an expert advisor (EA). While the MQL5 service itself is free, you access the copied trader’s signal through a copy trading subscription that can cost anywhere from $30 to up to $500.

ZuluTrade

ZuluTrade cannot provide services to U.S. residents, who can only use free demo accounts.

ZuluTrade has over 10,000 traders to choose from and provides software so you can narrow down the best trader for your needs. Many of ZuluTrade’s signal providers trade in demo accounts or have limited trading experience. The best way to evaluate the firm’s platform is through its demo account, which is offered free of charge and available to U.S. residents.

It may take some time, but once the right trader or group of traders has been found, copy traders who operate in live accounts could make some or even a lot of money with very little effort.

Best Low Cost

Due to the regulatory environment in the United States, few low cost social trading networks are currently available to traders based in the country.

Nevertheless, eToro expanded into the U.S. market and several non-broker networks can be accessed for a monthly fee. Also, the free MQL5 Trading Signals network mentioned in the previous section offers a large selection of traders to copy with a wide range of low cost price options.

eToro

One of the original social trading networks, eToro has gradually rolled out its services in the United States since late 2018. The broker plans on a full expansion into the U.S. market and will eventually offer all of its services permitted for U.S. residents.

The eToro social trading platform made available to U.S. residents will initially be for cryptocurrency traders due to lower regulatory standards and reduced oversight in the United States.

eToro can presently accept clients with a $200 initial deposit, but does not offer access to social trading yet.  

eToro has recently expanded its services to 30 states and two U.S. territories: Alaska, Arizona, Arkansas, California, Colorado, Georgia, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Virginia, Washington, Wisconsin and Wyoming.

eToro also provides services to residents living in the Northern Mariana Islands and the United States’ Minor Outlying Islands. eToro currently cannot provide services to U.S. citizens living outside of the United States.

When it comes to the rest of the world, eToro has over 10 million users in more than 140 countries. They enjoy access to 1,500 different asset classes and financial markets that include stocks, currencies, bonds, cryptocurrencies, commodities and derivatives.

The social trading component eToro offers is a world-class operation that features the company’s CopyTrade technology. The broker has virtually every type of trader available for users to follow and several different copy trading schemes.

Read Benzinga’s full eToro Review

Collective2

Collective2 is one of the non-broker networks that offers services to U.S.-based traders. Collective2 accept clients that have accounts with their partnered brokers, which include Interactive Brokers and about 20 other online brokers.

Before allowing you to access the platform, you must select an AutoTrade plan, which is priced according to the number and types of strategies to be copied. A subscription to C2’s base solo plan costs $49 per month for just one trading strategy.

For a monthly subscription price of $299, you can sign up for its Portfolio Plus plan that offers unlimited strategies. The individual trade leader or system manager generally sets the fee for their particular strategy, which costs anywhere from $20 to $200 or more per month per strategy.

The network offers a wide array of trading systems that you can copy, with assets such as equities, derivatives and fixed income securities that conform to U.S. trading restrictions. C2 also offers an annual discounted subscription that varies according to the number of strategies and the trade leader you might select.   

iSystems

iSystems allows you to access 1,442 automated trading systems created by 78 professional developers and tracked in 226 client accounts at 25 different brokers that trade everything from S&P 500 futures to precious metals and fixed income securities.

Select the system you’re interested in, pay the monthly fee and trades are copied directly into your brokerage account.

In addition to the 25 U.S. brokers that can access the platform, iSystems can also be accessed through 6 Futures Commission Merchants (FCMs) such as Gain Capital, Phillips Futures and Straits Financial.

The platform charges between $1.50 and €2.50 per contract depending on the market traded.

The monthly license fee for Automated Trading Systems (ATS) on the platform range from $25 per month to $500 per month with discounts for annual purchases and for purchases across multiple systems. iSystems is mainly for automated trading algorithms and does not support social trading, but due to the limited choices available to U.S. based traders, iSystems has been included here.

Final Thoughts

Because of restrictive regulatory requirements, social trading for U.S.-based copy traders has yet to take off. In addition to the FIFO and hedging rules, another obstacle for social trading in the United States is that contracts for difference (CFD) trading is not allowed. This significantly limits the instruments that can be traded by those whose trades you might copy.

If the Dodd-Frank Act is amended to allow for more financial freedom, then forex and CFD trading may once again become viable in the United States, which once had a vibrant retail market before restrictions were imposed in 2010-2011.

eToro has already begun the process and hopes to eventually give clients access to trade currencies and the stock market without CFDs. In the meantime, MQL5 probably offers the best copy trading opportunities.

Disclaimer: eToro is a multi-asset platform which offers both investing in stocks andcryptoassets, as well as trading CFD assets.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

This content is intended for information and educational purposes only and should not be considered investment advice or investment recommendation.

Cryptoassets are unregulated and can fluctuate widely in price and are, therefore, not appropriate for all investors. Trading cryptoassets is not supervised by any EU regulatory framework.  Past performance is not an indication of future results.