Who Are Influential Traders?

An influential trader is anyone who attracts a following by allowing others to mimic their trading activities. Unlike traditional asset managers or financial advisors, these traders do not necessarily need to be seasoned professionals. In fact, many influential traders are everyday people who have gained popularity through their social media presence or successful trades, which have resonated with a broader audience.

The rise of cryptocurrency markets, where volatility often creates large swings in price and opportunity, has increased the importance of these traders in the crypto ecosystem. As more people seek to benefit from the expertise (or perceived expertise) of others, the role of influential traders becomes a vital component in the broader crypto trading landscape.

Generally, No Need for a Financial Intermediary License

Generally influential traders do not need a financial intermediary or asset manager license because they do not directly manage clients' funds or assets, and do not act as an intermediary. Unlike traditional asset managers, they do not have access to the portfolios or wallets of the clients who follow their trades. They do not hold power of attorney over their followers' funds, meaning they are not directly handling or managing their followers' assets. Instead, these traders simply share their trading strategies and ideas, which others can choose to follow or copy.

The platforms where copy trading takes place enable users to choose to copy the trades of these influential traders, but the execution of the trades happens on the user's account and wallet, not the trader’s. The influential trader’s role is limited to publishing their trades and offering them for others to follow—it’s up to the individual users to decide whether to copy those trades or not.

Trading Advice vs. Financial Services

By allowing others to follow their trading activity and portfolio, influential traders can be seen as providing recommendations related to financial instrument transactions. Many social trading platforms also offer features like micro-blogs or discussions, where influential traders share their strategies. However, these recommendations are typically general in nature, not personalized to the needs of any particular follower.

Under Swiss law, particularly the Financial Services Act (FINSA), investment advice is defined as providing specific, personalized recommendations to clients about the buying or selling of financial instruments. Since influential traders do not tailor their advice to individual followers, and instead share general trading strategies, they do not generally qualify as providing investment advice under the scope of FINSA. Therefore, their activities typically do not amount to financial services, as they are not engaging in personalized recommendations.

However, this perspective may change if influential traders begin responding to specific questions from their followers. Such individualized interactions could potentially cross the threshold into providing financial services. But in most cases, the general nature of their recommendations keeps their activities outside the realm of regulated financial advice.

Market Abuse and Ethical Considerations

While influential traders may not be subject to strict financial service regulations, they must still navigate the complex world of market abuse regulations. These rules are designed to prevent practices like insider trading and market manipulation.

Influential traders with large followings need to be particularly cautious. If they make trades that influence the market in ways that can benefit them personally—such as front-running trades, where a trader buys an asset before sharing their trade idea with followers—they could be seen as manipulating the market. This could raise ethical concerns as well as legal risks.

The popularity of influential traders in crypto markets also means that their activities could potentially affect asset prices. For example, coordinated trades—especially in less liquid assets—can have a significant impact on market prices, a phenomenon seen in recent market events like the GameStop saga. In the world of cryptocurrencies, where volatility is often higher, the power of influential traders can be even more pronounced.

Conclusion

Influential traders play an increasingly important role in the crypto world, offering followers the opportunity to mimic their trades and strategies. These traders do not manage clients' funds, do not have access to portfolios or wallets, and do not hold power of attorney over client assets, meaning they generally do not need a financial intermediary or asset manager license.

Their activities are largely outside the scope of financial service regulation (so far) as long as their advice remains general and not tailored to individual clients. However, they must still be mindful of market abuse regulations and ethical considerations, as their trades could influence market prices, particularly in less liquid assets.

This is our current personal opinion, and we cannot exclude the possibility that regulators may view this activity differently. Only time will tell how influential traders will be treated under evolving regulatory frameworks.