The evolution of the social trader

Social psychologists have argued that before humans developed language, mimicry was one of the main forms of communication humans had with one another. It is in a large part thanks to mimicry, they contend, that human beings were able to create harmonious relationships in the first place.

If that hypothesis is correct, fintech startups are returning to Communication 101 with social trading platforms. These platforms enable users to follow the real-time trading activities of other investors and to mimic these trades in their own portfolio without leaving the platform.

For a while, it seemed like this throwback to roughly 100,000 years ago just wasn’t radiating that cool retro vibe. 2014 saw the closure of three social trading platforms, and it’s unclear whether some of the existing platforms have been able to raise growth capital. 

Nevertheless, if there was a ever a time for copycat financial apps to take wing, it’s now. Millennials, who make up 25% of the US population (that’s around 80 million people), are highly social beings: 90% of them are on social media, and 42% of millennials on Facebook and 35% of millennials on Twitter use these platforms to share content – in other words, to mimic their friends.

Another encouraging marker for social trading platforms is the impact of social media on millennial decision-making processes: a 2014 study by Market Studies International found that millennials are three times more likely than any other generation to reference social media networks before making purchasing decisions. For millennials, peer review and input is a major component of brand trust, and happily for social trading platforms, these features are structured into the service.

Transparency is the new black

In fact, these platforms can take brand trust a step further with their approach to transparency, another value that millennials cherish: “Many people obtain their ideas from newsletters, friends, social media, forums and chat rooms,” says Juan Mendoza, founder and CEO of Peeptrade, a newly launched financial information platform with a social twist. “But none of these sources actually show if the authors are putting their money where their mouth is.”

For Mendoza, social trading platforms, when done right, use transparency to grow investor trust. By allowing users to see what other people are doing with their own money in real-time, “people not only exchange ideas but also share their actual portfolios, performance and risk metrics with other users.” The fact that they can verify the statements of other users by looking at their portfolio and trading activity means that social trading platforms like Peeptrade are facilitating a community of investors who are linked by trust. 

Peeptrade is just one of a number of social trading platforms making social a core priority. Some of the biggest names include ZuluTrade, etoro, and Ayondo, which are, interestingly, all based outside the US. However, individuals looking to invest socially can choose from at least 29 different social trading platforms. In theory, these platforms level the playing field and empower individuals to invest safely, wisely, and simply. Heck, as etoro’s CEO Yoni Assia told Tradestreaming, they might even find it enjoyable.

Millennials aren’t investing, peeple

Wall Street needs all the help it can get in securing millennial investors – a March 2016 Harris poll commissioned by investing app Stash showed that nearly 80% US millennials aren’t invested in the stock market. Part of the problem is that investing is sometimes baffling – 75% of the women surveyed found investing confusing, though millennial men weren’t far behind, with a considerable 60% bamboozled by investing.

Social trading platforms are positioned to fill the investing information gap when it comes to millennials. The platforms are more than their autotrade (mimicking) capabilities. Peeptrade, for example, provides a significant amount of free financial information for its users, including trending financial news, market sentiment, analysts ratings, charts, quotes, and fundamentals. The company also provides filters to determine which expert investors (or “Gurus”) on the platform they should follow.

“Conversations and interactions are an important part of the platform,” says Mendoza. If millennials find themselves struggling to comprehend basic investing principles, they can turn to the social trading community these platforms foster for help. Because platforms like Peeptrade have invested in transparency, millennial users can easily decide which experts on the platform should be listened to (and which are not worthy of the coveted title “Guru”).

Robos are not the enemy – or are they?

One stumbling block on the way to social trading’s growth would seem to be roboadvisors, those automated investment advisors. However, Peeptrade’s CEO  envisions a world in which roboadvisors and social trading platforms live in perfect harmony, largely because each one serves a different target population. “Roboadvisors are a great tool,” says Mendoza, “but our users are people that invest on their own, and we want to help them make more informed investment decisions and help them learn from other experienced traders.”

Nevertheless, from a trend perspective, it seems likely that roboadvisors will lure away some of these platforms’ millennial clients. Wealthy millennials are already allocating 90% of their equity portfolios to ETFs, as part of a phenomena that Morningstar has ominously dubbed “flowmaggedon.”

Though the mimicry may be strong with millennials, it may not be enough to woo them to social trading platforms; if their peers have chosen robos, they might choose to copy that trend instead, especially if social trading platforms can’t match robos’ attractive low rates.

Meanwhile, for the self-directed investor among the 20% of US millennials who are investing, platforms like Peeptrade are making active investing more relatable and accessible. 

Photo credit: alant79 via / CC BY