WTF are social trading networks?


In the summer of 2015, Pinterest and Instagram introduced click-to-buy features to augment mobile sales. The move towards click-to-buy on these platforms seemed promising: brands and celebrities have hundreds of millions of followers on Pinterest and Instagram, and buy buttons would enable passive followers to become active shoppers in nanoseconds.

Nevertheless, these buy buttons haven’t really taken off, for a number of reasons: in the plethora of content on the web, individual pieces of clothing get lost, and, frankly, consumers aren’t really interested in using Pinterest and Instagram as purchasing channels.

The fashion industry might have known that getting people to actually make purchases with buy buttons was going to be tricky if they had looked to the world of finance. Fintech entrepreneurs have been trying to harness social technology for sales for years with social trading networks.

What are social trading networks?

Social trading networks are online platforms that enable members to follow the trading activities of other investors, including well-known professionals. Most of these platforms have autotrading capabilities, which means that investors can choose to automatically copy other traders’ moves from the platform itself in their brokerage accounts.

While the average person can figure out which brands to follow online based on his or her particular taste in clothing, the beginner or even veteran investor may have trouble identifying the traders worth following. Social trading networks help members tell the wheat from the chaff by providing completely transparent user statistics and history. These networks have taken the social aspect of their name seriously by taking their cue from Google+ (not a great sign, guys) and enabling members to trade in groups.

Sounds groovy. So what’s the problem?

Any concerns that brands had when launching buy buttons on Pinterest or Instagram could be soothed by the knowledge that all Pinterest and Instagram users wear clothing – there was always a certain chance that these users would be interested in buying their wares.

However, the audience that social trading networks is appealing to is much more niche – not simply investors or potential investors, but active investors. This pool is slowly evaporating, with increasing numbers of investors turning to roboadvisors, the new gods of statistics and analysis, to do their investing for them. With studies showing that passive investments are cheaper and perform better, it’s hard to blame them.

Moreover, social trading networks have a much bigger marketing challenge than brands on Pinterest and Instagram — people use these platforms for personal consumption, whereas social trading platforms need to convince investors to sign up in the first place.

Another problem is the assumption underlying social trading networks; i.e., that a trader that has invested well so far will know how to invest in the future. That’s a little bit like saying that a scholar of the first World War could have accurately predicted the second. Possible, but not probable.

That does sound problematic. Why would I join one of these networks?

If you do want to be an active investor, social trading networks have their perks: they make it simple to interact with like-minded traders, to gain access to trading statistics and analysis, and to adjust your portfolio to mirror that of your trading mentors.

If you happen to be a brilliant trader, you can also get paid to share your investment activities on these platforms.

Ok, I’m intrigued. Who are the major players?

Social Trading Guru lists 29 leading social trading networks. Most of the assets classes traded on these networks are forex, though some are stocks, indices, and commodities. In case the problems cited above gave you the indication that social trading networks are a digital disaster, the situation is not so dour: Israel-based etoro has raised $79M, while German-based ayondo has raised $10M.

Still, like their fashion compatriots, a lot of social trading networks seem to be struggling to monetize social technology.

Put it this way: social trading networks are the buy buttons of the finance industry. They might see higher usage rates in the future, but for now, they’re mostly a sideshow, not a main investing act.

How eToro’s Yoni Assia is bringing social trading to China and Russia

etoro expands to china, russia

Yoni Assia is the founder and CEO of eToro.

What is eToro and why did you launch it? What was your inspiration? How’s the business doing?

Yoni Assia, eToro
Yoni Assia, eToro

eToro is the world’s leading social investment network. eToro allows a community of traders to interact with each other, exchange views and share tips on a wide variety of investment vehicles including ETFs, stocks, currencies, commodities and indices whilst trading, and even directly copy the trades of another user.

I started eToro with the mission to revolutionize the way people access the financial markets and make their trading experience more social, simple, enjoyable and transparent. By harnessing the wisdom of the crowd, eToro members can benefit from accelerated information exchange, knowledge sharing and the ability to quickly identify the best investment opportunities.

At the core of what we do, we open up the financial markets to millions of new traders around the world. The platform now has over 5 million users across over 140 countries. eToro is the leading social trading platform and we intend to continue our expansion into other countries.

You just relaunched a new platform: what pushed the change and what’s new?

The new platform combines our social app and trading app in one place and features a number of advanced additions allowing people to evaluate markets and other traders’ investment decisions through new live-analysis tools including customised watch lists, diversification checks and charts.

The new platform also creates a safer way for individuals to participate in the market through a suite of advanced risk management tools including a risk score for each trader, the ability to predefine a copy stop-loss when copying a trader, and an option to trade all assets with no leverage.

With these new updates, social remains to be the heart of our new platform. With over five million registered members, traders are able to communicate directly with each other to ask questions, join online discussions and share knowledge and insight through an interactive, real-time news feed.

What’s the opportunity in Russia and China for eToro? Why are these geos important for you? Is trading becoming truly global?

On eToro, a Chinese or Russian investor can invest just as easily on Fiat, BMW, and Adidas or Facebook and Google as an investor in the UK and US. The social element really comes into play when investors in these countries can ask someone on the other side of the world what they are buying and their upcoming strategies. The translation function we have on the platform means that we are breaking down barriers across geographies and language.

We just recently hired a Managing Director in Moscow and have started to scale both this office and the Shanghai office. We see huge opportunities in both markets and the value social trading brings to people in China and Russia.

It looks like you’re partnering with your investors to scale into these geographies — is that the best way to enter these types of markets? Why?

As well as the financial boost provided by our investors, they also provide invaluable insights into the local market. We are getting assistance from our partners Ping An in China and Sberbank in Russia to set up the infrastructure and the potential is still mind-blowing. These markets are bit different because they are not 100% defined as it is in Europe. In Russia for example, they’re in the process of setting down rules and we’re part of the group helping to define the regulation of offshore investing. We’re seeing a similar thing in China too with our operation in the Shanghai free trade zone.

What’s next up for you and eToro in 2016?

We will continue our relentless technical innovation and sustained investment in R&D to further strengthen our position as the category leader. We will also invest in our human potential, focusing on the professional development of our strongest asset – our people.

We have considerable ambitions to establish new markets. Currently our main focus is on Europe, China and Russia, but with thousands of new traders from over 140 countries joining the eToro community every day, the global market is top of mind.

We launched eToro with one simple and clear vision – to revolutionise the financial system and blow open financial markets to millions of new traders around the world. Social trading enables people to make smarter investment decisions and is the way to invest. We’re excited about expanding our platform to new users and open up access to capital markets so the ordinary investor can trade in a simple, enjoyable and transparent way.

Photo credit: Kyle Taylor, Dream It. Do It. via Visual hunt / CC BY

Sell your investment strategies (without the cost and burden of creating a fund)


I frequently meet people with really compelling investment strategies and ideas.

Hey, can you help me raise some money?

They’re looking for help putting together a fund to demonstrate exactly how good their strategy or stock picking really is.

Starting a fund is hard…and expensive

It’s not that I can’t really help them — it’s that starting a hedge fund or mutual fund is pretty complicated and expensive. You need to see significant growth in assets to be able to scale these things to profitability (once they achieve that, though, they’re pretty damn profitable).

Like any startup, the chances of these startup funds achieving escape velocity — getting enough traction to turn their good ideas into profitable ones  — is pretty slim.

But, there are other ways of putting your investing talent to work and make money while doing it — all without the headache and onerous infrastructure needed to manage a fund or a regulated investment advisory.

How to make money from your investment ideas (without starting a fund or having $$)

Here are 5 ways to get started selling your portfolio strategies:

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