Foreign exchange cascades in the evolving world of trading
Source: http://www.reuters.com/article/2012/11/09/net-us-markets-forex-socialmedia-idUSBRE8A80Z420121109
When thinking of a highly specialized foreign exchange trader, the picture of an isolated man using highly esoteric information comes to mind. However, the world of trading in the foreign exchange market has been ever evolving since the advent of social media. According to Philip Baillie’s article, FX traders are now “hooking up their broker accounts with social trading networks, such as eToro, Currensee and Tradeo.” Such networks, which are often accompanied by commission fees, allow the traders to share and communicate their trades with other experts from around the globe. They even have leaderboards that show the top earning traders, often havingmany followers who mimic their trades closely for a price. One problem with these social networks is anonymous posting of false or inaccurate information, which is always a problem with message boards comprised of a large amount of users.
The idea of social networks for foreign exchange traders is highly relevant to our current focus on information cascades. When someone on a network sees a highly frequented trade, he could easily buy onto the trend and trade similarly on that FX. However, from what we learned in class, we learned that the whole cascade could be based on the initial trades. This shows that a highly traded FX could appear as a very good choice since many people feel the same way about a trade, however, it may only be the first few traders who actually had information about that FX and many followers after that. Similarly, if a certain FX is not traded by others on the network, it may discourage one from trading that specific FX, although it may be just as good as a choice as the others. The fact that many others are trading a certain way does not necessarily mean that it will be a good trade. An interesting part of these trader social networks is that the top traders are compiled into a specialized set. This relays to the idea that we covered in class of some members in network who have better information than others. It makes sense that those who pay to follow the trading leaders have better returns than those who follow any other arbitrary trader in the network. Also, we can use the direct benefit principle to describe the developments in social FX trading. Traders on the network can think of highly traded FX’s as more valuable than those that are traded less, giving them more incentive to trade those due to the knowledge combined with traders throughout the world.
Nice info, indeed!
This very nice information for all , hopefully with continued study of science that we have will make us to get a stable profit in the forex market, yes go bro…!!!