eToro Copy Trading Explained
Trading stocks has long seemed an elite activity, for those in-the-know, which remains elusive to the majority of people. Traditional stockbrokers charge high commission rates, and it is difficult for most people to understand the best companies to invest in, without insider knowledge. eToro, the world’s leading social trading platform, makes trading accessible to all. Using this simple guide to using the platform, and its CopyTrader feature will help you make money and invest wisely, without needing to be an expert! Simply put, this feature means that you can copy other traders: all trades that they make will be opened in your account too, and you will achieve the same rate of return as they do — although the exact amount will depend on how much money you allocate. You can also use eToro to invest in your own stocks, but this article will focus on the popular CopyTrader feature.
Making An Account
It’s free and straightforward to sign up for the website: you simply need to enter your details and choose a username, and enter a phone number, to protect your account’s security. In order to make trades, you will need to complete your profile. This helps tailor the platform to your needs, and covers basic personal information, alongside some trading experience questions. Having done this, you can deposit money to get started: the minimum is $200, but note that you can deposit in GBP and other major currencies, which will be converted to USD in your account.
Getting to Know the Site
There are five main sections of the eToro site, which are essential to familiarise yourself with:
Watchlist: Organise the people and markets which you’re interested in copying, or which might be good investments: it’s possible to create multiple lists, for example ‘potential investments’, or ‘people to watch’. This is a good way to gauge whether traders are worth copying, and tuning into useful information.
Portfolio: Here, you can view all your open trades with live updates, and monitor your performance. You can see your overall return on the investment in a trader, and how individual trades are performing — it is possible to close individual copied trades without copying a trader altogether. While it’s tempting to check this every few hours, remember that no trader will profit every week or month, so try to take a longer-term approach — this will require patience! Checking and changing too often, and over-trading, is a common mistake made by beginners.
News Feed: Here, as on other social media, you can see everything the traders you follow have been doing and saying recently.
Trade Markets: This is where you can research and trade in available markets, including stocks, currencies, commodities, indices and ETFS.
Copy People: Here, you can search through other traders, and find some to copy or follow. You can see promising and trending popular investors by scrolling down the page, but make use of filters to help narrow down options, specifying certain markets or filtering by performance: many people make mistakes, and lose money, by copying those who are ‘most copied’, who are not necessarily the best traders.
CopyTrading: The Essentials
Key Stats
By clicking on the ‘stats’ stab in a trader’s profile, you can access information to help you decide if they are worth copying. The risk score indicates how risky they are (green indicates very safe, moving through yellow, orange, red and black as risk increases). The max drawdown shows the most that a trader has been ‘down’ in a certain period: whether daily, weekly or yearly, as below.
Who NOT to Copy: Red Flags
1. Anyone whose weekly or daily drawdowns exceed 10%
2. Ridiculous returns: 1,000%+ returns in a short period of time suggests recklessness, rather than smart investment — this is unsustainable, so while it might seem counter-intuitive, very high returns are not necessarily a good sign!
3. 100% win rate: closing some trades is a sign of experience, while beginners are more likely to chase their losses.
Instead, try to follow those who demonstrate their experience and knowledge on their profile feed, and who share their trading methodology: all those who know what they are doing should be happy to share some of their expertise!
Copying a Trader
Once you’ve followed these steps, and found a reliable trader, open their profile and click on the ‘Copy’ button. You will be prompted to enter an amount with which to copy that trader. You will be shown the average copied trade size, which demonstrates how the copying will work in dollar terms. You can also set a ‘stop loss’, which protects against heavy losses, where the default is 40%, meaning if the person you are copying loses 40% of your investment, you will stop copying them automatically. You can set this level to any figure, depending on what risk you are prepared to take.
Now, you have learnt to copy traders and have started investing — invest wisely, and good luck!
Disclaimer: eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.
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.
Cryptoassets are volatile instruments that can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading crypto assets is unregulated and therefore is not supervised by any EU regulatory framework.
This guide is intended for educational purposes only and should not be considered as investment advice. The author and publisher are not liable for any losses or damages you may incur as a result of you following the advice given on this page. The etoro.com layout and content may change since this content was published.
All images sourced from etoro.com
