From Copy to Practice: Follower’s Learning Behavior in Forex Social Trading

Forex social trading platforms endows novice investors with opportunities to trade on foreign exchange markets by mimicking the investment strategies of sophisticated traders. But concurrently, the copy-trading mechanism underlying these platforms foster a conducive learning environment whereby inexperience followers could evolve into independent traders by observing and learning from the trading behaviors of prominent traders. Drawing on observational learning theory, we advance learning efficiency and effectiveness as focal yardsticks to encapsulate followers’ learning performance and explore their effects on the profitability of followers’ first independent trades. Preliminary analysis conducted on a leading forex social trading platform reveals that traders’ trading consistency amplifies followers’ learning efficiency whereas traders’ profitability bolsters followers’ learning effectiveness. Furthermore, while our empirical findings attest to the criticality of learning effectiveness on followers’ ability to profit from their initial independent trades, speeding up the learning process may not guarantee better performance.