The Rise Of Social Trading And How Web 3.0 Is Reshaping The Industry

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Social trading grew massively during the global pandemic when retail investors used social media communities to artificially ‘pump’ the price of GameStop shares. The concept was simple – retail investors coming together on a social platform to launch a coordinated buying spree of the shares to stop the institutional short-selling of GameStop stocks. This caused heavy losses for hedge funds and institutional derivative investors holding puts on the shares, creating one of the most successful social trades in the past decade.

Simply, social trading refers to investors leveraging social networks and digital communities to make profitable trades across financial markets. Usually, less experienced traders will copy the trades of more experienced (professional) traders, gaining inspiration on what assets to put into their investment portfolios. 

The growing interest towards social trading has greatly impacted the financial investment realm, as investors look for investment inspiration and advice on their next asset pick. As such, several social trading platforms have spawned in the past few years, offering investors capabilities to enhance their profitability and risk management qualities. 

Nonetheless, centralized social trading platforms still face major challenges, and are susceptible to flaws and vulnerabilities similar to those affecting centralized exchanges. This article delves deeper into these challenges and focuses on how decentralized social trading platforms are aiming to change the narrative around their Web 2 counterparts. 

The conundrum of Web 2 social trading platforms

Social trading offers several benefits to traders – both professional traders and their followers. Followers gain access to professional trading strategies allowing them to be more profitable, serving as a learning hub, and providing insights on the current market sentiments. 

For professionals, they can grow their social following by sharing trading strategies and having their trades publicly visible and accessible. Additionally, expert traders can also learn from interacting with their followers via a symbiotic relationship whereby they give their followers expert strategies and the followers offer their feedback, creating a positive and productive knowledge loop. 

While social trading has been picked up by millions of traders in the past decade, the centralized aspects of these platforms cause massive challenges to the growth of social traders. Some of these challenges include: 

• Poor quality of information: Web 2 social trading platforms depend on the information shared by professional traders. However, if the information from professional traders is skewed or biased, it can lead to poor trading decisions for the followers. 
• Limited accessibility: One of the biggest challenges of social platforms is that some traders may be locked out from some of the communities due to KYC requirements or regulatory issues. Web 2 social trading platforms require identity verification which could sideline traders from several countries around the globe from accessing the information. 
• Security and privacy concerns: Centralized exchanges are cognizant of all the traders’ history, account balances and other confidential information. This could be a challenge if the CEX is hacked, which could expose sensitive information to potential hackers or scammers. 
• Cost of trading: Social trading platforms are also susceptible to additional costs that complicate the sharing of information across communities. These extra costs add complexities to social trading and may reduce the profitability of a trader. 
• Performance Verification: It can be challenging to verify the track record or performance of other traders on social trading platforms. Without transparent and reliable performance metrics, it’s difficult to assess the credibility of their recommendations.

Addressing these issues requires an overhaul of the current Web 2 social trading platforms. Luckily, several platforms such as Apex Pro, Phemex and Banyan are making social trading more accessible, transparent and profitable for users. These decentralized social trading platforms introduce better privacy, enhanced security, low costs and global access to the trading communities, which massively improves social trading as we know it. 

How Web 3 platforms are revolutionizing social trading

As explained above, Web 2 social trading platforms grapple with a myriad of challenges that hinder the global growth of the platforms. These challenges hinder the free flow of information and diminish the profitability, security and privacy of traders. 

The rise of Web 3 platforms as innovative solutions to social trading is addressing these issues while revolutionizing how trading is conducted and information exchanged across social trading platforms.

Diving into the ApeX Pro social trading ecosystem

For example, ApeX Pro, a non-custodial trading platform, delivers ross-margined perpetual contracts to its metacommunity under a new social trading framework. The platform delivers global access to its trading community, allowing traders to share and learn new trading strategies. The platform ensures fast transfer of information, low costs, efficiency and transparency on trades executed while ensuring high levels of security and privacy on users’ sensitive information. 

In addition, ApeX Pro supports multiple blockchains such as Ethereum, Arbitrum, Avalanche, Binance Smart Chain (BNB), Polygon, and Optimism, enabling users to trade across their blockchain of choice and select their preferred professional trader. It also removes the presence of intermediaries, which lowers the cost of trades, optimizing crypto derivatives trading and performance on its platform. 

Web 3 social trading platforms also allow traders to openly engage with each other on a secure platform and enhance the trading performance of users by providing trading rewards. The rewards incentivize pro traders to give better market predictions while followers interact more on the social platform to improve their trading performance. 

Moreover, Web 3 platforms foster a sense of community ownership by allowing users to control and own their data, reducing the risk of compromised security. 

Notwithstanding, ApeX Pro further solidifies its platform via its governance token, $esAPEX 12, and its ApeX Soulbound tokens – ApeSoul. ApeSoul tokens give traders complete control over their assets and trades, removing the need for KYC or centralized oversight over the trades. The tokens verify trading performance and identify pro traders, establishing a transparent and straightforward system for top traders. 

Finally, pro traders within the ApeX Pro ecosystem can create a communal vault that allows followers to deposit their funds and earn an algorithmically determined share of the net profits upon the closure of a trade. Leveraging blockchain technology, followers can verify the profits made in the vault and determine their rewards. 

What the future of social trading may look like

Social trading is a relatively green ecosystem as of today. The introduction of decentralized social trading platforms marks a crucial step in the development of the ecosystem but it seems prime for more innovations in the future. 

The integration of artificial intelligence and machine learning to analyze vast amounts of social and market data in real-time could be a huge step forward for social traders. These algorithms can help traders identify market patterns, market sentiment analysis and predict price movements more accurately hence improving the performance of their trades. 

Secondly, social trading platforms need to add more advanced social tools and features, allowing for better and faster communication between pro and amateur traders. Additionally, better communication tools could facilitate better interactions and knowledge-sharing across the community, enhancing trading on these platforms. 

Finally, as is with Web 3 social trading platforms, gamification of these platforms (Trade-to-Earn etc.) could help amateur traders to learn strategies better and manage their trading risk more interactively and engagingly.