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Choosing a social trading broker

Franklin Carneiro da Silva| Updated May 16th, 2022

One of the most important decisions you make when you venture into social trading is which broker and network to choose. Now, you may wonder why choosing a broker is so important. Aren’t they essentially just doing the same thing? Well, unfortunately, it’s not that simple.

There are a large number of social trading brokers out there. Some are based in and regulated Europe or other top-tier jurisdictions, while a much larger number of brokers are operating from various locations offshore, with limited transparency and little or no government oversight.

For traders who prefer to sign up with one of the more reputable providers, however, there are a number of strong brand names to choose from. Among the biggest and most popular social trading brokers that are regulated in Europe – and which we have reviewed on Investing in the Web – are:

  • eToro
  • Naga
  • Darwinex
  • Zulutrade
  • Tradency Mirror Trader
social trading platforms comparison

At Investing in the Web, we have reviewed a number of the top social trading brokers and platforms. Full comparison table is available here.

The reason why choosing a good company is so important is because there are significant differences between the various brokers in the market. Let’s therefore go through some of the factors you should consider when choosing a broker.

1. Regulation

First and foremost, it’s important to consider the country – often called the jurisdiction – that the broker is based in. The reason for this is that the country where the broker is based is also responsible for regulating the broker, meaning to determine the rules that the broker must play by.

As you will likely find out over time, brokers in certain countries tend to offer trading conditions that are seemingly better than brokers in other countries, such as a higher amount of trading leverage.

Brokers based in for example the European Union (EU) has imposed strict limits on the amount of leverage they can offer, limiting this to a maximum of 1:30 on popular trading instruments such as the euro/US dollar currency pair. This was not always the case, however, but was introduced with new regulations from the EU’s financial regulator known as the ESMA in 2017.

If, on the other hand, you go to a broker based in Australia or an offshore jurisdiction, you’ll find that this leverage can go as high as 1:500, and sometimes even higher.

There is, in other words, a huge difference in the amount of leverage you can get depending on the jurisdiction the broker is in.

Now, it’s important to note that even though it may be tempting to take advantage of the weaker regulations in other countries, you should not simply jump onboard with a new broker based on the amount of leverage it offers you.

In fact, doing that is incredibly dangerous, and you may even end up being scammed by a broker that takes your money and runs away. And if the broker is based in some offshore jurisdiction with very weak or even non-existent regulations, there may be very little you can do to get your money back.

In regions like the EU & UK, North America, Australia, New Zealand, and Japan, you can usually rest assured that the broker is reliable, as long as it’s obvious that it is regulated locally within the country.

top-tier broker regulators

The FCA (UK), FINMA (Switzerland) and ASIC (Australia) are among the most important regulatory agencies that oversee the social trading and forex broker industry.

In other parts of the world, however, practices vary widely from literally no regulation and oversight in many small – but very popular – island nations such as Saint Vincent and the Grenadines, the Marshall Islands, and the Seychelles, to reasonably good oversight in countries like Singapore, Hong Kong, Switzerland, and South Africa.

What you should also know about these jurisdictions is that the small offshore countries that don’t regulate brokers at all are in fact popular countries for social trading brokers to incorporate in. You should therefore not be surprised to find out that a broker has an office in one of those countries, but you should definitely consider your options carefully before you deposit money with one of those brokers.

Sometimes, you’ll also find that the broker in fact has offices in many different countries, which is something that complicates the issue of how it is regulated. The way it works in these cases is that you’ll automatically be assigned to the entity of the broker that is responsible for the jurisdiction you are a resident of.

If that sounds complicated, please bear with us for a little bit longer. Because of all the different rules around the world, the issue of broker regulations has unfortunately developed into quite a complex issue.

Let’s look at some examples to help you understand which regulations you – and your broker – will be subject to:

  • If you live in an EU or EEA country, you’ll be assigned to the EU-based entity of the broker*. As a result, you’ll be subject to the strict EU regulations which limits trading leverage to 1:30.
  • If you live in Australia or Japan you will usually be assigned to the entity of the broker based in your own country.
  • If you live in the US or Canada, you will usually only be able to sign up with a social trading broker that has a presence in your country.
  • If you live in other countries than the above, you will usually have few problems in choosing the broker that suits you, and you will usually be assigned to the offshore- based entity of the broker where regulations can be weak but trading leverage high.

*Some brokers circumvent these rules and allow their EU-based clients to sign up with their offshore entity. However, the legality of this practice is questionable.

Lastly, if you’re unsure of whether the broker you are considering to sign up with is regulated or not, all you need to do is usually just to scroll down to the bottom of their website. Using the social trading broker Darwinex as an example this time, we can see the following at the bottom of their site:

Darwinex disclaimer

Screenshot from Darwinex.

These are two key pieces of information that proves to us that the broker is most likely regulated. First, we can see that the broker states clearly that “73% of retail investor accounts lose money” (this is, by the way, not necessarily the case for copy traders, since you then choose to copy only the best traders on the platform…).

As you can probably imagine, no broker would say that most clients lose money unless they were required to do it by the regulator. And that regulator, in this case, is the UK’s very reputable Financial Conduct Authority (FCA), as seen in the other red rectangle.

2. Reputation and Customer Service

Another factor that is important to take into consideration when choosing a broker is the broker’s reputation among traders. You may want to do a few Google searches to research other people’s experience with the broker before deciding to go for it.

Keep in mind when researching a broker, however, that there will always be some people who have had bad experiences with a certain broker. In fact, only positive feedback makes things look even more suspicious, because that is simply not realistic. There are mixed opinions about all brokers, but for some brokers it’s easier to tell that something is obviously not good than it is with others.

Another thing you may want to consider is to take a look at some professional reviews of the broker. There are literally a ton of websites out there that do these types reviews, but bear in mind that most of them are not very good, nor should they be trusted.

Many review sites have special deals set up with particular brokers, and will receive extra commissions from a broker for recommending that particular broker over another broker. Therefore, it’s always good to be critical of what you read in reviews, and to verify the information yourself.

At Investing in the Web, we have also reviewed a number of brokers. However, we always strive to keep ourselves to the highest professional standards in what we do, and only provide neutral and fact-based reviews of social trading brokers.

Further, it almost cannot be emphasized enough how important customer service is for the user experience of a social trading broker. And this naturally ties in with the reputation of the broker, since customer service – or rather the lack thereof – is one of the most common complaints traders have about their broker.

A social trading broker should be easy to get a hold of when you need it, and they should be helpful in addressing any kind of concern you may have. A working customer service phone number within the EU, preferably open 24 hours on trading days, and a live chat option with responsive support agents, is a minimum in our opinion.

3. Popularity and Quality of Traders

Another thing that is especially important with social trading brokers is to look at how popular the broker is. In general, the more users trade on a social trading platform, the better it is for you, as it provides you with more options on who to copy and what risk profile you are comfortable with.

This is not as important if you’re a traditional trader who is not planning to try out copy trading anyway. For copy trading purposes, however, you’ll definitely want to have a fairly large user base to make it worthwhile to join a new broker.

But the number of users is not everything. You’ll also want to make sure that the users on the broker’s platform – especially those who share their trades with others – are what we can call “quality traders”.

Keep in mind that there are many inexperienced traders out there who are simply trying to earn some extra money on the side by sharing their trades with others.

Some of these will inevitably end up getting lucky with their results for a few weeks or even months, and thus end with a track record that looks impressive despite their lack of experience. However, the results may very well come from them taking huge risks that are hidden to you as a copy trader, until their trading eventually fails and all profits are lost.
This is why you should focus your efforts on finding experienced traders who build slow and steady profits over time rather than massive profits over just a short period of time.

4. Social Trading Platform vs Broker vs Network

One problem for many new traders who want to get into copy trading is to differentiate between a platform, a broker, and a social trading network. Fortunately, this is not as difficult as it seems.

In most cases, the broker is the company you sign up with, create an account with, and deposit money with. It is also the broker that decides your trading conditions (spreads, conditions, leverage, etc.), and that is regulated by the government.

In turn, all social trading brokers offer one or more software platforms that their clients can use to make trades and to copy other traders. And this is where the social features all come in, with the ability to interact between users and see statistics about other traders you can choose to copy.

Lastly, the term network is sometimes used interchangeably with the platform. Strictly speaking, however, the network refers to the community of traders that are active on a particular platform. As we have mentioned earlier, it can be a great advantage for you as a copy trader to have a large network, as that translates into better opportunities to find good traders to copy.

As you can probably imagine, there are a variety of social trading platforms available on the market. Some of these platforms are developed exclusively for one broker, while others are generic, or sometimes so-called “white-label” platforms that are used by a number of brokers, although they are often branded as their own.

In any case, you’ll have to use a trading platform that your chosen broker supports.

So, whether you choose the broker based on the platforms they offer, or choose platform first and then find out which broker supports it, is of course up to you. Just be prepared that your broker will most likely not support a new platform just because that’s a platform you want to use. Most brokers don’t operate in this way.

Naga Platforms

The popular broker Naga offers its clients the choice between either the MetaTrader 4 (MT4), MetaTrader 5 (MT5) or its own proprietary platform. However, copy trading is only supported on the broker’s own Naga platform. Some brokers also support copy trading on MT4/5, through a software add-on.

With the huge progress that have been made in technology over the past few years, it should be no surprise that trading platforms have also evolved from the extremely complex pieces of software that they used to be.

Now, even the most simplistic social trading platform is in fact far more capable at gathering data and presenting it in an easy-to-understand way than complicated professional platforms were back in the early days of trading. As a result, trading from home is also something that has surged in popularity, as it has become both more accessible and much more intuitive.

etoro platforms

eToro’s own copy trading platform is very simple to use for copy traders, but still powerful enough for even advanced traders, who use it to share their trades with others. The platform is available for web, tablets, and smartphones. Screenshot from eToro.

Since many social trading platforms have developed to become simplistic in a bid to attract new and inexperienced traders, however, it’s important that you consider which features the platform has to offer. Because while a simplistic platform can lower the barrier to entry for new traders, it may not be the best solution for you in the long run.

In reality, it is – after all – essential to learn and use a variety of different trading tools in order to be a successful trader.

5. Important factors when choosing a social trading platform

  • Number of users and signal providers: Social and copy trading derive from people, thus one of the most important factors is the number of users, as well as the number of strategies/traders that you can copy/follow. It increases your range of choice, the chances that you will find good traders, and it is also a way to use the wisdom of the crowd in your favor (if it has the most number of users, chances are it shouldn’t be that bad).
  • Reliability and security: Is it regulated by top-tier institutions? Does it offer investment protection? Where is it based, and operating for how long? Is it publicly listed? What do their customer reviews say?
  • Products and Markets: Is the platform specialized in forex? Or does it offer a more broad product portfolio? For the average investor, more products and markets means more diversification possibilities, so it is better, but it will depend on your own profile and preference.
  • Copy feature: Many social trading platforms don’t allow you to automatically replicate the signals, but only to communicate and see real-time signals from other traders. You then have to place them manually, after making your own judgement, if that’s what you wish. All the platforms here mentioned include this feature.
  • Social feature: Does it allow you to communicate with other traders/investors? You might want to know why a certain trader has behaved in a certain way, so this is also an important feature to consider.
  • Supported Brokers: Some social trading platforms operate with their own brokerage, while with others you will have to connect it to a 3rd party broker.
  • Data about the trader: You should be able to understand, analyze and assess their strategies, style and track record. The more information, the better.
  • Fees: This is a very tricky part. Most social trading platforms differ in terms of the fees charged. It can be tricky to understand them and optimize them to make sure they aren’t burning your profits. For example, most social trading platforms only operate in USD, so when you deposit EUR you will incur in high currency conversion fees. There are ways to minimize this.
  • Platform interface and user experience: Some rather old trading platforms are still popular among traders today, but they aren’t overly user friendly. Find out what works for you.
  • Mobile App: Is the platform also offered as a mobile app so you can place trades or check your performance while on the go?

Take a look at the platforms you find interesting, open a demo account, take your time, and decide! Also feel free to reach out to us at success@investingintheweb.com or in the comments below. We would love to hear your experiences!

Once again, a reminder that the above should not be construed as investment advice and should be considered information only. Investors should do their own research and due diligence about the services and opportunities best suited for their risk, returns, and trading strategy.