Social Trading: The process of publishing trades via a social networking platform, whether on dedicated social trading platforms such as eToro and ZuluTrade, or via mainstream social media channels like Twitter. Traders can see what other traders are doing, and copy their trades if they so wish.
Copy Trading: A development of social trading that enables investors to automatically copy the trades of selected trade leaders in their network. This is usually free to do, but some of the more successful traders charge others to view and copy their trades.
Money Manager: Someone who invests on behalf of others, usually as part of an investment vehicle such as a mutual fund or a hedge fund. There is some debate about whether trade leaders on social trading networks can be classed as money managers.
Trade Leader: A trader who publishes their trades on social trading networks, and enables others in the network to copy their trades. Some of the more successful ones charge for the use of their trading signals, although the majority do not.
Signal Provider: Like a trade leader, a signal provider – which could be a human trader, or an algorithmic trading strategy – publishes trades, or suggested trades, via social trading networks. The main difference is that a signal provider does not provide the opportunity to automatically copy their trades, although there is now a degree of ambiguity between the two terms.
Technology Provider: In social trading terms, this is the company that provides the platform whereby traders can publish their trades, and view/copy the trades of others. In some cases, this will be a distinct entity from the broker, although tie-ups are increasingly common.
Broker: The company that executes the trades on behalf of social traders. They can do this through a variety of means, including market making (taking the other side of each trade without ever executing them in the markets proper) and direct market access, which entails executing trades on behalf of clients on the open market via liquidity providers.
UK – Financial Conduct Authority – About Authorisation
This page provides you with all the information and links you need to obtain authorisation to work as a money manager in the UK. While this isn’t strictly necessary at the moment, but may become so if regulation forces trade leaders to be licensed.
Australia – Australian Securities and Investments Commission – AFS License
Aside from the UK (and to a lesser extent the EU), Australia is the only country to have been relatively pro-active in terms of the copy trading regulation discussion. Again, there is no real need for traders to obtain an AFS license to participate on copy trading networks at present, but it is worth looking into. This page provides you with all the necessary resources that you might need to find out about obtaining an AFS license, which may become necessary for trade leaders if the proposed regulations pass into law.
News articles on the subject:
- Forex Magnates – Regulations for Signal and Copy Trading
- Forex Magnates – Social Trading, Money Managers, and Regulation
- Forex Magnates – FCA Issues First Opinion on Copy Trading
- Leaprate – ASIC and FCA look to regulate copy trading
- Seeking Alpha: Financial Regulators Look at the Licensing of Auto and Copy Trading