A new study has revealed that traders on social investment platforms—where users trade crypto and gain followers based on performance—are actually performing worse when their follower count fluctuates.
The research, conducted by experts from the University of Florida, University of Maryland, and University of Washington, found that both gaining and losing followers led traders to take riskier positions. Investors who saw an increase in followers became overconfident, leading to more aggressive trades that resulted in about 10% worse performance in the following weeks. Conversely, those who lost followers also engaged in riskier trades—perhaps in an attempt to win back their audience—further damaging their portfolio.
“If the number of followers increases a lot, it creates an overconfidence effect. You are more aggressive in trading, and your future trading performance will be worse,” explained study co-author Liangfei Qiu, Ph.D. “But we also found that losing followers doesn’t reverse this trend. Instead, traders take even bigger risks and their performance worsens.”
The Dark Side of Social Trading
Social trading platforms have grown in popularity, allowing investors to showcase their trades much like influencers on YouTube or Instagram. However, this study suggests that social validation is influencing financial decision-making in a way that harms traders in the long run.
Cryptocurrency, already a highly volatile market, seems particularly vulnerable to this kind of behavior. The study’s findings suggest that traders might be prioritizing social recognition over sound investment strategies.
What Can Be Done?
The researchers warn that both social trading platforms and individual investors need to be cautious. If platforms overemphasize follower counts and social features, they may ultimately harm their users’ financial success and risk their own long-term credibility.
For traders, the takeaway is clear: emotional decision-making driven by social validation can be costly. Sticking to disciplined, well-researched strategies rather than chasing followers may be the key to long-term success in the crypto space.
What do you think? Have social pressures influenced your trading decisions? Let’s discuss!
