Is Social Investing Safe?

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Unless you’ve been hiding out in the remote wilderness for the past few years, you have almost certainly heard about social investing. It’s a newer way for groups of people to combine their knowledge and financial resources in order to make the most of stock trades.

There are hundreds of online social groups that specialize in one or another kind of investing (like forex, options, futures, stocks, commodities, etc.) and exchanges.

Some of these groups do nothing more than share “tips” and best practices among themselves. Others pool their money and place coordinated orders for particular stocks in the hopes of affecting price levels. In all, there are multiple ways social investing groups work their magic.

If you’re wondering whether it’s safe to take part in this modern way of investing money in the securities markets, here’s a short summary of what you can expect if you get involved:

There Is Power In Numbers

When 2,000 or more investors all agree on a course of action, the results can be quite amazing. Especially when the decision to buy or sell turns out to be based on solid information and correctly predicts the direction of the move, everyone earns a profit.

Often, social platforms for traders include several expert-level practitioners who guide the group and suggest various positions.

You’re always free to accept or decline the advice and stay out of a given trade. But, the main advantage of social investing is the collective power of investment capital, which is sometimes substantial enough to influence the price of a security.

There Are No Guarantees

Just because you’re hooked up with a hundred or a thousand other people and following the group’s advice, there’s no guarantee that you’ll make a profit. Often, “group-think” takes over and large masses of people make very bad decisions in unison.

However, one of the main downsides of social investing is that new traders often view it as a way to avoid making mistakes, and it is not. Instead, it’s wisest to view social investing as a way to pool financial resources and get lots of opinions before making your own decision about what to invest in.

Results Happen Fast

Some of the online investing groups number in the thousands of followers, which means that when they take concerted action on a particular buy, the effects can be almost instantaneous. This is particularly true when the security in question is one issued by a newer, smaller corporation. If, for example, 10,000 investors all hit the “buy” button on ABC Corp. stock at the same time, infusing perhaps millions of dollars into the market within a few seconds, the price of the shares can rise accordingly.

Some Groups Are Better Than Others

If you’ve ever shopped for a car in a big city, it’s easy to understand the concept that social investing groups aren’t all of the same quality. If you decide to try one out, check its credentials, see how many people are signed on, how long it’s been in operation, and what its track record is. Like any other market niche, there are some groups with excellent reputations and others that you simply won’t be able to find any information about.

Start Slow, and Observe the Action Before Investing

The smartest way to get started with social investing is to choose a few high-quality groups that have been around for more than a year. Then, simply observe the action for a few weeks, making notes about the success rate of their trades. After that, you’ll have a better idea about which group would best suit your style of investing.

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