Investing money with others on the Internet is the principle of social commerce. Providers promise quick returns without high fees. But is it true? What beginners need to be careful about when investing in social networks.
Together it works better - that's the idea behind Social Trading. Users share their investment strategies, those who wish to can follow them. More and more platforms and banks are offering social trading on the internet, find examples of well-known sites at https://www.masslib.net/.
Users do not publish holiday photos on Etoro, Ayondo or Wikifolio. They put their choice of securities on the net. The portals have only one objective: to jointly increase returns. Social trading is the name of the phenomenon on the Internet that allows you to follow other investors on the platform to make smart investments. Instead of networking with friends, users follow other investors.
On Wikifolio.com, private traders present their business strategy. Other investors can then invest in this "Wikifolio" at any bank. "Any published portfolio that has at least ten supporters and has been positively evaluated by us can be traded on the Stuttgart stock exchange," says Andreas Kern, the portal's founder in Vienna. Basically, Wikifolios works like an index certificate that the buyer places in his portfolio.
Banks also have their social trading services
"There are a whole range of platforms that offer social commerce," explains Adrian Englschalk, financial advisor at the Lower Saxony Consumer Centre in Hanover.
The basic principle is similar: the participants make their investment decisions public, and everyone can see whether the strategy works. "The advantage is that most portals offer a high degree of transparency," Englschalk explains. "However, this requires that you know your way around and can assess the composition of a portfolio".
Banks now also offer their customers social commerce. "We didn't want to offer classic funds with high fees, so we looked for alternatives," explains Florian Eismann of Fidor Bank in Munich. Direct banking clients can now use the Ayondo platform via the bank's online banking application and services. At the click of a mouse, they become social traders.
Ayondo and Wikifolio do not have to make their portfolios public. "You can do social trading both actively and passively," explains Eismann. Those who don't want to create their own portfolio can invest with other traders. The minimum investment for the platforms is 100 euros.
One of the advantages of investing via social networks is the relatively low cost: "Unlike actively managed funds, we don't charge management fees," explains Kern. "We earn on a performance fee."
If a Wikifolio generates good returns, some goes to the Wikifolio company and some to the private trader. On average, this amounts to 10 to 15 percent of the profits, says Kern. However, the royalty is only due if a Wikifolio exceeds its previous peak.
Banking regulations for online trading?
The actual purchase of securities is handled by the Lang und Schwarz bank, explains Kern. "This gives us a lower cost than if everyone bought and sold securities individually.
Eismann also provides the cost argument: "The shares are not actually deposited with Ayondo, but only replicated, so order and transaction costs are eliminated. In between is a third party - a broker who pays out the profit and reinsures himself against the corresponding risks.
However, this is precisely what banker Englschalk sees as problematic: "These are all very risky investments that are traded on portals that are not subject to banking regulations. They were subject to the trade supervisory authority, but not to banking supervision. "In the worst case scenario, you're stuck with your losses." Liability is generally excluded by the portals in the general terms and conditions.
"Social commerce is for people who are interested in financial market issues anyway," Englschalk explains. Those who build up their own portfolios have to take an active interest in their investments. The same applies to social trading. "It's not a story you can just start and then drop." Wikifolio founder Kern also admits: "Our target group is more likely to be interested in the stock market." But Kern also says: "I wouldn't advise anyone to invest all their money in Wikifolio".
"The decisive factor is whether the system has developed solidly in times of prosperity as well as in times of crisis," says consumer protectionist Englschalk. However, it is difficult to assess this because of the high fluctuation. He therefore recommends: "Always start by investing with fictitious rather than real money. That way you can check whether the strategy is working.