eToro offers its clients a wide range of trading tools, including copy trading. If you are looking for a safer way to enter the world of leveraged trading, copy trading could be a good fit.
There are numerous ways to trade the financial markets. Most people that use high amounts of leverage in their trading lose money. Platforms that allow the use of high leverage generally have very few clients that actually make money over time.
Copy trading is an innovation that allows traders to look through the track record of other traders, and emulate traders who have a trading style or trading history that makes sense to them. In practice, this kind of strategy has mixed results.
Copy traders who diversify across a few successful traders tend to avoid catastrophic losses, which can help to offset the risk that is inherent to leveraged trading. The copy trading platform at eToro is advanced. eToro has worked to make their copy trading tools fit the needs of both new and experienced traders alike.
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eToro Risk Warning: 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Copy Trading Brokers
There are a number of Brokers who offer copy trading functionality and more and more are starting to offer this feature. Here are our top picks, taken from our Top Brokers guide.
Copy Trading at eToro: How it Works
Anyone who joins eToro’s social trading network could become a “Popular Investor”. The results that a trader or investor creates play a big role in building up their popularity.
In order to join eToro’s social trading network, all you have to do is have an eToro account. Once you have successfully opened an eToro account, just opt into the social trading network.
If you want to become “verified” on the social trading network, you will have to display your real name and have personal information checked by the eToro staff.
Choosing a Popular Investor and Strategy
eToro allows traders to sift through Popular Investors by using a range of tools like Gain Percentage, Assets Traded, Profitable Weeks, Geographic Location, and others.
There is no one right way to choose a Popular Investor to follow. Your money will be traded by the Popular Investors you choose, on a totally passive basis.
One drawback to the platform is that the account value of Popular Investors isn’t disclosed. If you want to trade with an investor who has a lot of money in their account, there is no way to rank Popular Investors based on the size of their holdings.
There are other metrics that you can use to evaluate Popular Investors. You are given a 1-year risk score table that is based on a formula that eToro created, as well as a graph with the number of eToro copiers over time. You can also find the total amount of trades and profit ratio made by Popular Investors, and their 3 most traded instruments.
You will also be able to see their current open trades and portfolio distribution, which can help you decide if you like the markets they trade.
Putting Your Money to Work
Once you decide on a few Popular Investors that you want to copy, it is extremely simple to invest your money alongside them. Just allocate the amount of your holdings you want to copy trade with via the social trading platform, and your money will trade with the Popular Investors of your choice.
There are no special fees to use the eToro social trading platform, but any brokerage fees that would apply to a normal trade will be applied to copy trades. If you want to see how the trader you are interested in copying has performed in a graphic, there is a charting feature that could help.
eToro allows you to chart the past performance of Popular Investors over a range of time periods. You can also compare their performance against major indices and stocks you like. There is a minimum investment of $200 per trader, and you can only dedicate 40% of your holdings to a single trader.
Tips for Using Copy Trading
Choose Multiple Traders to copyResearch their trades and strategiesDiversify Traders – Choose traders in different industriesChoose traders with long track recordsReinvest any profits to benefit from the compound effect
Copyportfolios are another eToro innovation. Instead of investing your money by copying a trader directly, eToro Copyportfolios allow you to either invest in a portfolio, called a ‘Market Copyportfolio’, or a ‘Top Trader Copyportfolio’.
The Market Copyportfolios are something along the lines of an ETF and are created to take advantage of a specific investment thesis. There are numerous Market Copyportfolios to choose from, and it would be a good idea to do some backtesting before jumping into a Market Copyportfolio.
The Top Trader Copyportfolio puts your money to work with the best performing traders on eToro’s social trading platform. This is a good way to spread your money across a range of skilled traders, and reduce the risk of catastrophic losses.
Strategic Considerations With Leverage and CFDs
No matter how you decide to gain exposure to leverage, it is important to understand the amount of risk that is involved.
Leverage will amplify your gains, but it will also create much larger losses if the market moves against your position. When you copy trade, the amount of risk taken is decided by the Popular Investor you choose to copy, which takes one of the most important aspects of risk management out of your control.
Making sure that the Popular Investors you copy trade have a solid track record is important, but it is also vital to diversify your investment money across a number of traders or assets.
A trend-following trader could look amazing when they are backtested, but when their trend reverses, they could lose their entire position rapidly. Leveraged trading can create amazing gains in the right market, but it can also wipe out your investment capital virtually overnight.
Read our guide to CFDs here to find out more about “Contracts for Difference”.
eToro Offers Access to a Wide Range of Markets
eToro has the advantage of offering its clients numerous trading instruments, in addition to its social trading network that makes copy trading possible.
For traders that want to ability to actively speculate on the macro markets, and also have managed trades by established investors, eToro could be a good choice. It is very simple to trade in and out of numerous markets, and also drop capital into copy trade accounts that are in essence passive investments.
There are no minimum investments to make with eToro, once the minimum deposit has been made to an account. The broker also offers high leverage on many of the major markets, which could be attractive for some traders.
Read our complete review of eToro here if you’d like to know more about this broker.
Is Copy Trading Good Fit for You?
Copy trading is an interesting innovation and eToro has created a solid platform that just about anyone can use.
Even though it is possible to backtest a trader’s performance, it is still a very good idea to be cautious when investing in leveraged products. There is no what to know when a trader is going to have a bad run, and your money would be going along for the ride if you chose to copy their trades.
Copy trading could be a good way to add risk to your portfolio, especially as a way to hedge larger, passive equity positions that would likely get caught up in a market sell-off.
Like anything in the world of investments, diversification will help to avoid big losses, so keep that in mind whenever you are allocating your investment capital into the markets. Copy trading at eToro could be a good way to work with leveraged positions, without having to do all the research and trading yourself.
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eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.