Disentangling the Effects of Geographic Proximity on Forex Social Trading Platforms

Forex social trading is a nascent financial innovation that endows investors with opportunities to speculate on global currencies online by following and emulating investment strategies from savvy traders. Although social trading has been touted as a means of lowering distance barriers and facilitating interactions among investors, the geographical dispersion of forex markets confines traders’ expertise to domestic currencies due to the cost of information gathering, thereby culminating in home bias behavior. Espousing geographic proximity theory, we endeavor to explore leading traders’ home bias propensities on forex social trading platforms and uncover how such behaviors may affect their performance and their appeal to followers from afar. Furthermore, we strive to delve into the role of governmental transparency of currency issuers on reconciling followers’ preference for profitable home-biased leading traders. In so doing, we quantify the influence of geographic proximity on leading traders’ performance and followers’ subscription tactics, which in turn yield insights into optimized emulative trading strategies for forex social trading.