LONDON The solitary world of online foreign exchange trading is emerging from the shadows as solo investors turn to specialist social media networks to link up with their peers and seek market-beating strategies.
Individual or retail trading, estimated at 8-10 percent of the $2.5 trillion daily spot FX market, used to conjure an image of a lone trader with little contact with the outside world.
But that is changing. Thanks to specially tailored websites known as social trading networks, users are able to see and even copy the trades of top-ranked rivals, swap ideas and gauge the market mood in online chat with a community of contacts.
"In the world of trading there are a lot of signals but social media gives us the market sentiment and it is ideal for chatting to people across the world for trade ideas," said Patrick Orini, who has been trading FX online since 2004.
Retail forex traders make their deals using personal accounts through brokers such as Alpari, FxPro and IronFX. Increasingly, traders are hooking up their broker accounts with social trading networks, such as eToro, Currensee and Tradeo.
Traders usually pay a subscription to use the service while the social network and the broker might share revenue on trades.
In a system reminiscent of microblog network Twitter, top players who make their trades visible can gather thousands of followers, some of whom pay to copy their strategies.
Orini's trading account on a social trading network called Tradeo has 500 followers, of whom around 20 copy his trades.
If online investors do well in their trades, they will attract more followers and will be ranked higher on the trader "leaderboard" posted on the site.
Retail FX has grown over the last decade as brokers allow individual traders to take highly leveraged positions previously accessible only to institutional investors. The largest group of market players is based in Japan.
eToro, one the world's largest social trading platforms has processed more than 20 million trades since it went live at the beginning of 2012.
Tradeo, a social network for forex traders based in Tel Aviv, launched three months ago and, according to its co-founder and CEO Jonathan Adest, the site has posted up to half a billion dollars of trades from around 10,000 traders since then.
"It's not a broker, but a network for brokers -- a bit like an online trading room," Adest said.
He said Tradeo also combats a key hazard of online trading -- inaccurate or bogus information. Traders often swap ideas on comment boards, but anonymity and low security makes it difficult to weed out spam.
"The idea of creating a niche social network for forex traders is to help verify commentators usually found in chat rooms and comment boards," Adest said.
In its increased use of social media, online forex trading is catching up with developments in the equities market.
Retail equities trading is estimated to account for up to half of trade in UK small companies. Retail FX's smaller share of the overall market reflects the fact that most trade is over-the-counter and lack of volatility that make it harder to turn a profit.
In the equities market, analysis of Twitter postings and news headlines has been used to predict stock price movements.
London-based hedge fund firm Derwent Capital is launching a new spread betting application for retail traders in January that will use Twitter's 350 million daily tweets to create a sentiment indicator covering currency pairs and other assets.
Social media makes existing currency market sentiment models more effective, said John Hardy, head of FX strategy at Saxo Bank.
"It would be a new way to measure "sentiment" in real time, something that banks can do already via how people are actually trading...but the Twitter measures might be able to bring new nuances and sophistication," he said.
Arguably, solo traders who hook up to social trading networks are seeking an edge in the "wisdom of crowds".
"The reason why so many people, like myself, do share their activity and ideas is to help each other and build the community," Orini said. "I got so many valuable ideas from other traders, that I'm more than happy to share my ideas as well." (Editing by Nigel Stephenson)