- The retail trading revolution has been closely tied up with social media, from Reddit to TikTok.
- Now apps are putting the two together and betting that “social trading” will be the next big investing trend.
- Social-trading fans say it’s democratizing investing by letting young traders follow profitable strategies on the cheap.
The coronavirus crisis powered a revolution in investing, as millions of people stuck in lockdown signed up to trading apps and plowed their money into stocks or crypto.
And because it’s been powered by an army of millenials and Gen Zers, that revolution has been intimately connected to social media.
Think of the traders on Reddit’s WallStreetBets forum whacking hedge funds by driving up meme stocks. Or the huge community of so-called finfluencers on TikTok, where the investing hashtag has clocked up 4.2 billion views.
Now a range of established players and startups are betting that social trading will be the future of investing for young investors.
Platforms vary in their approaches, but the basic idea is simple: to combine the fun of social media with investing. People on social trading apps can see other users’ profiles, interact with each other, and copy each other’s trades.
One app looking to take advantage of the trend is eToro, a trading platform set to go public via a blank check company in a $10.4 billion deal.
“Copy trading” has been at the heart of eToro’s European business for years. The app provider is now set to launch equities trading on its US platform this year, and will later roll out copy trading, eToro’s CEO Yoni Assia told Insider.
On the eToro app, users can see who the most successful traders are. They can then sort those names by size of gains, or by the kind of markets they invest in. Next, they can then automatically copy those users’ trades.
“We’re very passionate about having our investors learn from one another,” Assia said. “Whether it’s simply through following the most successful investors, talking to them, reading what they’re writing about the markets, or automatically copying them.”
Putting a different spin on social trading is a US app called Iris. It hit the headlines recently for adding House Speaker Nancy Pelosi to its influencers section, using Congressional declaration data, after her family scored some big stock wins.
Iris alerts users when friends, influencers or celebrities make trades, and lets them mimic the moves by sending orders to their broker.
“It’s a mentality of Gen Z and millennials, where we are naturally used to sharing everything,” Chris Josephs, cofounder of Iris, told Insider.
Josephs said social trading is not only fun, it’s also effectively bringing wealth management to the masses by helping young traders follow those whose bets are doing best. He expects it to become big business as the new army of retail traders gradually realizes “that it’s very, very hard to invest on your own.”
Yet critics say social or copy trading can carry potentially hefty risks. Investors may stop thinking about their investments, or the person they’re copying may turn out to be a dud.
And if copy trading really takes off, it could lead to millions of retail investors trying to sell a stock at once, causing a fire sale and leaving some traders with big losses.
Benjamin Chemla, an entrepreneur who’s launching social trading app Shares in Europe, said the platform will focus on letting people see their friends’ moves and on sharing advice. “It needs to be fun,” he said.
But it won’t have automatic mirroring of trades. Chemla told Insider he thinks it’s a bad idea to have “superstar traders” with lots of followers.
“It’s quite dangerous when you end up having like one person who actually is investing just a few thousand that can eventually impact millions … and so, like hundreds of thousands of lives,” he said.