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Broker's Guide: Should you launch Social Trading?

If you're a forex or a multi-asset trading broker, social trading is undoubtedly a term you've heard of and possibly considered for your business.

Social trading has been an option for investors for over a decade. It's in extremely high demand, and there are many copy-trading service providers to choose from.  However, the questions remain, is this the right addition and direction for your brokerage?  And importantly, do the benefits outweigh the objections?

What is social trading?

Social trading is where social media and investing come together. It provides everyone with the opportunity to invest with little or no experience.

Experienced traders (are encouraged to) share their strategies, investment decisions and make performance completely transparent. Other traders can learn by watching and replicating their chosen experts' strategies and trades in real-time.  

Social trading is essential in the democratisation of finance, as it provides accessible information to less experienced investors. The copy trading element of a platform widely opens new markets and new users.  

When looking at why copy trading technologies are in demand, statistics show investors on social platforms are circa 40% more profitable.

So, is social trading the 'silver bullet' for a forex broker?

The growing demand for social trading platforms has increased 400% since 2015.  Now the pressure is on brokers to meet demand, with the supply of trustworthy, user-friendly copy trading platforms.  

Many brokers who have decided to outsource a fin-tech provider have seen outstanding success. Social trading platforms experienced a phenomenal growth of new investors in 2020, with some platforms recording a 361% user increase since the previous year. Stock market volatility, crypto trading and people spending time at home during COVID-19 lockdowns were all contributing factors to record growth across most major social platforms.

Moreover, a copy trading tech investment is a marketing investment too. The nature, ease and transparency generate free publicity for a brokerage.  Their existing traders refer and invite their friends, family and their community onto the platform as potential customers.  Successful brokers soon see a high volume of new customer accounts and a significant decrease in their cost per acquisition (CPA).

Benefits of social trading for brokers

The value, reach, and community a social trading platform gives can elevate a brokerage to another level of success.  An increasing number of forex brokers now include social trading in their service portfolio. They see adopting copy trading technologies as a rewarding way to:

● Provide a user-friendly, low-latency and cost-effective platform to their existing and new customers.

● Significantly expand business and customer reach to a new global audience of traders.

● Attract a new generation (Gen-Z and Millennials) of customers effortlessly into their sales funnel

● Substantially increase trading volumes

● Boost the trading activity of their existing client base

● Increase the conversion rate of demo to active accounts

● Lower overall CPA with increased customer referrals

● Increase customer retention

● Boost overall annual revenues

Let's look at some of these advantages in more detail and expand on what they mean:  

Infographic - Benefits of Social Trading for Brokers
Infographic - Benefits of Social Trading for Brokers

Gain a competitive edge for your brokerage

Online retail forex is fiercely competitive, so it is often difficult for brokers to standout in such a crowded sector.  Introducing a tailor-made, accessible, copy trading solution to your customers helps you gain an advantage over your competitors.

Approaching new markets and customer on-boarding just got easier

A brokerage instantly becomes receptive to new markets with a social trading platform.  With such a broadly-used offering, it attracts a large global audience of new customers.

Brokers have observed that the onboarding client process is more effective and faster.

Customer referral game-changer

In any industry, customer referral is fundamental, as it significantly impacts and lowers your CPA.  The beauty of this technology is it's intrinsically designed for traders to refer and invite their contacts on to their platform.  By offering social trading you are making your existing client base work as your platform's marketeers.  If you imagine conservatively, for every new trader account, this could mean 1.5 new customers, if every other trader recommends this route of investing to just one friend or colleague.

Customer Retention - New and Old

Brokers have found their social traders remain engaged for a longer period – as they will have invested time and effort into building up their profile.  Just like a social media account. The idea is that a network becomes more valuable to its users over time as they add more content and invite more friends, thus creating a sticky ecosystem.

Social trading platforms retain existing customers too.  A one-stop-shop approach plus a variety of subscription modes encourages investors of all levels to include copy trading as one of their strategies. It's a great way to increase engagement, activity, and revenue with your existing customers.  

Improved Account Conversion Rates

Copy trading can overcome a big pain point for many brokers, which is converting demo accounts into actual live accounts.  Many new traders close their accounts after their initial deposit is lost, understandably fearing further losses.  Social trading can diminish this problem for new in-experienced customers as they simply copy the top performers and can immediately start profiting.

How HokoCloud can help?

We can help forex brokers reap the rewards of social trading by providing a bespoke, easy to integrate, and cost-effective solution.

Our social trading tailor-made platform allows each broker to choose which features to incorporate.  It serves both the broker and the client and is packed with features and tools, including, but not limited to:

● Seamless integration with the MT4 and MT5 trading platforms, both for backend and also frontend elements.  

● Access to trading statistics and data of those featuring on the marketplace.  

● Complete client control over their accounts via web interfaces.  

● Invaluable risk management tools to control drawdown and manage risk limits for clients.

● Automatic fee payments, plus several fee types, including flexible performance fees, which allow the effective management of rewards for successful providers.