One of the best comparisons with social trading is an investment fund. The reason for that is because you’re basically getting the same thing whether you choose to copy another trader or give your money to a fund manager to let him invest on your behalf. In both cases, you’re giving up control over your money temporarily to someone you believe will do a better job than yourself at earning returns on your behalf.
A major benefit of copy trading than traditional investments in mutual funds and hedge funds is that the entire process tends to be a lot more transparent in copy trading. And with recent innovations from some social trading brokers like eToro, it’s even possible to copy pre-designed portfolios that mimic actual investment funds.
On eToro‘s popular social trading platforms, it’s now even possible to invest directly in pre-designed portfolios
As a copy trader, you get to see the exact trades that your chosen “expert trader” makes, and you can choose to stop copying him and withdraw your funds at any time. Try that with a traditional investment fund, and you’ll see that it takes a couple of days for your request to go through, unless you’re bound by certain lock-in rules, which of course, would complicate things further.
In any case, the market price may have already changed dramatically compared to what you expected by the time you finally manage to sell your fund holdings.
As a copy trader, you essentially get the luxury of having many different fund managers to invest money with. And even better, you are free to move money between them at any time depending on their performance. And it all happens with unmatched speed, transparency, and even at a very low cost.
Of course, there are many investment funds, some with underlying business activities which are very interesting, and not just “trading” or “investing”, as you have in copy trading. Overall, it will depend on your preference, and you must do your own research.
Let us know in the comments what you think about the differences between investment funds and copy trading.
Pedro is passionate about finance, marketing, and technology. He is a growth manager at several online projects and a former digital marketer for a fintech company.
