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The inside scoop on everything from social trading compliance to the fundamentals of our framework.

Social trading has emerged as a game-changer, offering a unique blend of investment strategy and community interaction. It lets investors share their insights and learn from each other to make informed decisions. However, to ensure its effectiveness and legality, the practice requires strict compliance measures.

This guide seeks to unravel the ins and outs of social trading, its distinction from copy trading, how to maintain user privacy, prevent market manipulation, and distinguish the difference between advice and guidance.

Social Trading vs. Copy Trading: Understanding the Differences

While both social trading and copy trading foster shared learning and engagement in the trading community, they have distinct features catering to different investor needs.

 This approach offers a more engaged, participatory trading experience. Investors learn from each other, share their insights, and base their investment decisions on collective wisdom. It's an active, hands-on approach, beneficial for those eager to learn and manage their own investments. The prime focus of social trading is to create a community of informed investors who contribute to and benefit from shared knowledge and experience.

 Contrarily, copy trading offers a more passive, hands-off investment experience. It involves replicating the trades of successful investors automatically. The trader merely chooses an expert trader to follow, and their trades are copied automatically into the follower's account. This approach is suitable for those lacking the time or expertise to manage their trades actively. It allows beginners to profit from the strategies of successful traders – and experienced traders to earn commissions when others copy their trades.

Although there is a theoretical risk of social trading being used for market manipulation, we at StockRepublic have implemented robust measures to combat such activities. Our preventive steps hinge on three core principles: user identification, transparency & accountability, and effective moderation.

 All logged-in users are verified and vetted through regulatory KYC and AML processes. While they remain anonymous from each other, this level of identification helps discourage and detect any collusive activities.

 Our solution aligns users' portfolio activities with their posts and comments, allowing for clear visibility of any potentially manipulative behavior.

 We utilize advanced moderation tools to detect suspicious behavior and take immediate action. These tools are effective in both open forums and closed groups.

We strictly adhere to data protection and privacy measures, requiring only our end users' holdings and transaction history data. These data points are tagged to an anonymized user identifier provided by the financial institution, ensuring we never handle sensitive personal information.

We implement data anonymization measures, meaning that we never disclose which customer owns what. Users' holdings and transactions are revealed only as percentages of their total portfolio, safeguarding their financial information and maintaining a fair playing field.

With our White label App, StockRepublic takes on content moderation responsibilities, while our Social Trading API customers are responsible for moderating their own content, aided by our tools. Our moderation tooling removes inappropriate posts, suspends accounts for breaking the rules, and encourages self-reporting among members.

We actively moderate illegal, abusive, or infringing content, maintaining a positive and respectful user environment. Any infringement of our guidelines can lead to the review, deletion, or banning of users.

To prevent conflicts of interest, we do not compensate any contributors on the platform. Our mission is to create a community that fosters transparency without any hidden vested interests.

We deter users from market manipulation practices like share price ramping through anonymity and a ranking system based on risk-adjusted returns. The platform's transparency makes it easy to identify and report any manipulative behavior.

Distinguishing Between Advice and Guidance

Drawing the line between advice and guidance is critical in a social trading environment. Here, users share personal investment suggestions, which are considered guidance rather than advice, since the financial institution or StockRepublic does not employ them. This clear separability ensures our customers are at "arm's length" from end users' suggestions and ideas.

Regulatory bodies have not raised issues concerning the distinction between advice from the bank and social interactions on forums. StockRepublic and its partner banks take full responsibility for the controls and processes to maintain compliance and protect the interests of all stakeholders.

All the answers you need to get started and comply with social trading.

The Comprehensive Guide to Social Trading and Compliance

Social Trading and Compliance. All the answers you need to get started and comply with social trading.

Social Trading and Compliance

The decision to build or buy typically stems from a desire to solve a specific company or customer problem, whether it's industry-wide or unique to your business. A problem demands a solution.

In making plans to solve the problem at hand, it’s helpful to ask yourself, team members, and key members of your organization some essential questions.

While coming to a conclusion can be challenging, doing your research and making a strategic plan can make a world of difference. That’s precisely why we have put together this resource for you. While there is no one-size-fits-all solution, the information herein will give you the tools to create an outcome-based plan tied to your goals, current state, and plans. Then, once there is a decision to go for social trading, we can help with both buy and build scenarios.

Will your organization have the right amount of time, dedication, and people with the right skills to build and maintain a social trading app from scratch, or are your resources in better use elsewhere? Before deciding whether to build or buy, you must map out your resources.

What are the core competencies of your company?

Does your company have the skills, tech, or experience to solve the identified problem in-house or not? For example, building an email deliverability tool in-house would align with your company’s core competency if your company specializes in email marketing software. On the other hand, custom-built accounting software would not. And in cases when not, buying third-party software is a viable solution and takes the pressure off your product and development teams.

To build a social trading platform from scratch, launching and later maintaining and supporting it requires a broader team of backend- and frontend developers, application designers, UX writers, product marketers, growth managers, and community managers. If you’ve done the calculation work and are leaning towards building your solution, it’s essential to consider the resources used and how that impacts other areas of your business. For example, the opportunity cost of using your resources to build social trading functionality meanwhile they’re more needed elsewhere may hurt your core business - especially in a highly-competitive fintech landscape.

If social trading is not (or will not be) your main product, it makes sense to outsource it.

The next consideration is the time horizon. Is your problem a threat to the very livelihood of your company or just a nagging annoyance that could be improved? 

If you need a solution right now or would like to utilize a first-mover advantage, it’s an easy decision; Buy it!

Here’s a helpful scenario to consider. You recently noticed an alarming increase in churn rates – the retail investors of your banks are joining other neo-banks or zero-fee brokers because your platform doesn’t offer functionality that engages and educates them. In this case, the quicker you can deliver a product and start driving value (for the business and the customer!), the more of a competitive advantage your company will have over time.

If the current problem isn’t threatening the health of your business short term, meaning you already have a great stack of features with a competitive advantage, then there may be room to build your own social trading software. Because if you haven’t tried building social trading functionality before, you need to remember that it takes a tremendous amount of time to get it right. There are many compliance challenges, design, and user-flow testing, and iterations to be made before you have social trading functionality that is competitive on the market. But in return, and if done right, you may have a solution that stands out even more. And hey, you don’t need to start entirely from scratch – you can always utilize our 

When building social trading apps, remember that the job continues after launch.

Not only do you need to focus on product development and maintenance, but you will also need customer support and moderation when you launch a new social trading application or feature set. According to Hubspot, 

58% of customers consider switching to a competitor directly due to poor customer service

; in other words, it is not a component of the equation that should be taken lightly. If your customers can’t access the support they need or feel that they’re heard, it won’t matter how impressive your solution is.

Without a long-term plan and solution, there are numerous potential points of failure and performance bottlenecks. As such, determining lifetime use, including support and moderation, is critical when deciding between buying and building.

If your problem/challenge is not solved soon, will it critically impact the health of your business?

Whether you allocate money, human resources, or both, are you taking the workforce away from meaningful work elsewhere?

Will building a solution on your own in any way be detrimental to other ongoing projects?

Even though social trading is an excellent way of differentiating yourself, increasing engagement, or branding yourself as a community-driven brand in a highly competitive market, you may want something else. Therefore, you must ensure that social trading solves the problem.

Social features work well in a suite, which is why Whitelabel applications are highly appreciated when banks and brokers go from zero-social to full-social trading. These apps have an iterated feature set generated by the needs of former clients and the industry and usually include more advanced features that would take a long time to build yourself. Another great reason to go for a Whitelabel application is that it’s already “battle-tested” and had its child diseases. Less debugging, more doing.

However, your organization may need more time to go full social. Implementing, facilitating, and nurturing an investment community on a full scale typically requires organizational changes.

The social trading suites on the markets may not solve your problem if it’s very particular to your bank or brokerage business. But on the other hand, it does not have to be an obstacle, though some social trading vendors are (*cough* StockRepublic *cough*) open to customer feedback about future features and customization.

Features from StockRepublic's Whitelabel application

It could also be that some social features from the suite feel overwhelming or unsuitable for the users on your market. In that case, it may be better to cherrypick some social functionality and complement an existing application. However, adding new social features to an existing app creates compatibility issues and may affect your app’s fundamental user flows, design, and user experience. If uncertain, perform a POC and try out functionality that is easy to switch on and off.

Suppose you realized you need greater customization, niched problem-solving, and advanced integrations to solve your pro- blem. In that case, there are more advantages to building your own feature set of social trading than buying an off-the-shelf social trading application.

Social trading applications tend to be complex, and working with user data and compliance can be both confusing and tedious, even for experienced fintech developers. As such, you must consider the risks and rewards of buying versus building a solution.

If your data is a vital component of your competitive advantage, then it becomes imperative to maintain this information internally by building your own solution. External control of your data leads to another risk of buying: security. As a bank or broker, you are a target (and often a victim) of large-scale cyber-attacks. Even though the third-party vendor uses cybersecurity best practices, breaches do happen and are worth extra consideration.

Will it be a social-first app or an app with social features?

Does social trading solve the problem you have identified?

Will your new product need to integrate with any of your existing products?

Are the third-party vendor using cybersecurity best practices?

How will this third party use your proprietary data?

Does buying the software mean losing access and oversight to essential customer data and other business insights?

Building software takes time and money, and often, more time and money than expected. However, calculating the potential and likely return on investment is essential to any serious company, and it’s no different when making a ”Build Vs. Buy” decision. Having an accurate estimate that considers multiple scenarios and potential outcomes is worth its weight in gold to stakeholders. Now, how do we get there?

One of the most significant variables is estimating development costs. Much has been said about accurately finding such estimates. Most would agree that various sizing, scoping, prototyping, or POC exercises im- prove the estimates’ accuracy, but utilizing those exercises can add a high cost on top of the other work. Correctly calculating even a ballpark ROI can be difficult at best.

The true cost of building enterprise-level software

For many companies, which is especially true for businesses that do not have a big budget for building enterprise-level software, it’s easier to justify a monthly recurring payment or even an annual expense for a third-party product.

Let’s use buying or renting a home as an example. If you do not have the necessary funds to make a downpayment on the house, renting becomes necessary, even if the rental fee is equivalent to the mortgage payment.

When deciding whether to build a solution to your problem, the budget must include the long-term technical debt (mortgage in the house metaphor) associated with hosting and maintaining your solution and the upfront costs (down payment).

Think upfront about all the possible hidden costs you can encounter later. It can include ongoing maintenance costs, unexpected issues, extended development/ evaluation time, ongoing support costs, and more.

Unanticipated expenses, such as server fees and monthly database charges, could be considerable economic risks in building your software. However, third-party companies that service many customers can distribute the costs of software operations and maintenance evenly across their clients. These economies of scale can allow them to charge less for a product or service than you would achieve by building it yourself, which is vital to consider.

Most would agree that various sizing, scoping, prototyping, or POC exercises improve the estimates' accuracy, but utilizing those exercises can add a high cost on top of the other work.

Think upfront about all the possible hidden costs you can encounter later. This can include ongoing maintenance costs, unexpected issues, extended development/evaluation time, ongoing support costs, and more.

Can the third-party vendor take a hit? Or two?

In the scenario of you buying a third-party social trading app, there’s a risk that the company concludes that it must raise its prices or face going out of business. And even if you accept this sudden cost change, the company may go out of business. So when you use third-party vendors, you need to have confidence in their ability to weather a market downturn or other external factors that may impact the health of their business.

What hidden costs (maintenance, ongoing support, etc.) may you encounter later?

The opportunity cost – what could these resources be spent on otherwise?

Do you have the necessary funds to finalize this project? Even if it goes over budget?

Could a third-party vendor weather a market downturn or other external factors that may impact the health of their business?

Whether to build or buy comes down to competencies, capabilities, budgets, and goals. If you have the internal chops to build a feature set that will give you a competitive advantage without sacrificing other areas of your business, then it makes sense to do so. Aggressive growth goals, however, require a different approach. Here, buying technology or even an entire company outright can be worthwhile.

If you think you have come to a conclusion, we have one final component to consider - weight. By that, we mean that not all criteria are equally important; they do not carry the same weight. To make the calculation even more complex, the amount of weight that someone may put on each pro and con in the “Buy Vs. Build” process will vary between stakeholders and often depend on so many different factors that it becomes difficult to assess. So, consider this your final reminder to tally up the score and attribute weight to each line of reasoning and talking point. Once that is done, you should be ready to make a decision.

Suppose you end up with a tie or simply can’t decide. Fear not. Our solution - do both.

For example, you may have decided to build but are in a time crunch. Consider using an external solution while you wait to finish your build. A stopgap solution still allows you to move forward even if it doesn’t meet 100% of your needs.

Build in-house if your current resources (team, processes, time) allows you to do so and/or if your budget allows you to hire more people who will dedicate their time to building this new product.

In-house development can be the best solution if you need to solve a complex problem or your use case is on the edge of what existing solutions can solve.

If you decide that this feature is close to your core competence and that you have the resources needed, our 

Opt for a white-label application such as our 

 if your development team is already overwhelmed with the number of core features to work on in the future and you don’t plan to hire new people soon. It can be the most cost-effective solution, especially if your budget is tight.

It can also be the fastest way to solve specific problems at certain product lifecycle stages, such as decreased NPS score, lack of investment guidance features, organic growth, increasing revenue, and more.

Buy vs. Build for Social Trading Applications

This handbook provides Banks and Brokers with a decision-making framework, helping them address if to build or buy their social trading application.

Handbooks

A social trading and community platform that enables unique portfolio insights, benchmarking and social collaboration for the customers of banks.

Bring the best of Social Trading to your Customers with StockRepublic

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Social Trading and Compliance

Buy vs. Build for Social Trading Applications

Social Trading and Compliance

Buy vs. Build for Social Trading Applications

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