As the copy trading industry matures, a greater attention to risk develops

As so-called social trading grows, more platforms are catering to concerns about risk level to investors and are now offering innovative ways to help prevent losses.

Copy trading platforms have surged in popularity in the last several years, offering average people and novice investors an accessible way to trade.

There are now more than 30 platforms facilitating copy trading, which allows users to follow and copy the investment moves of others.

The platforms are similar to other social media sites, like Facebook and LinkedIn, but it is not one’s social or professional life that one seeks to share with friends, but rather one’s investment decisions.

The growth of social trading also comes as more Americans in general engage in retail do-it-yourself trading. According to Aite Group, about one-quarter of U.S. adults use online retail trading sites.

As the social trading sector is poised to continue its rapid growth, many copy trading platforms have added more options to protect users from losses and increase awareness of risk.

A recent relaunch of leading copy trading platform eToro included adding a risk score to all investor profiles. The eToro copy trading platfrom also introduced additional changes, which also include not allowing other traders to copy the moves of those with the highest risk scores.

The platform, like many of its peers, also contains a copy stop loss feature, which allows users to select the amount of money they are willing to lose before cutting off a copy-trading relationship.

The inclusion of stop-loss and other features that let users evaluate and control risk factors are in growing demand on social trading sites, and figure prominently in industry reviews of such platforms.

etoro and others have said that such features are important because they want to encourage responsible trading. The addition of more sophisticated, customized risk controls has also allowed eToro to remove its limit on how much someone can allocate in copy trades. In the past, users were limited to allocating 40% of their equity, but now they can allocate 100% because the risk profiles of traders are now more clear.

While the social trading industry is still in its early stages, the greater awareness of risk assessment along with the attention it has attracted by regulatory bodies are signs of it entering the mainstream financial world.