eToro is a social trading network. It’s a bit like if you combined a social network like Facebook with a trading platform. On eToro traders can share the trades they make, and copytraders can automatically copy these trades. In this post I’m going to break down how copytrading works and whether its a good way to invest your money.
What is CopyTrading
CopyTrading is where you automatically copy the trades made by other traders. For example, when a trader opens a stock trade, your account will make the same trade. You allocate funds to copy a trader, and now, whenever they open or close a trade in their account, your account will do the same. If they make a profit, your account will make a profit too.
On eToro you can browse through the profiles of thousands of traders. Some traders on eToro specialise in certain markets or assets like stocks or forex. Some traders will only trade a single currency pair. Others will have diverse portfolios and trade wherever they see an opportunity. eToro shows you how much of a gain (or loss) a trader has made so you can copy traders who have had a positive trading history. They’ll also show you a risk score for each trader. Letting you filter out traders who have a riskier trading style.
By copytrading you can take advantage of the experience and knowledge of other traders. Not only will they be trading for you, you’ll also learn a lot about investing and trading works. Many of the top traders on eToro post updates explaining why they make certain trades and what market conditions they are looking for.
My top tips for copytrading on eToro
- Copy People with a Low Risk Score – eToro assigns each trader a risk score. The higher the score the risker the trader. The score is based on what assets the user trades (i.e crypto is risker than stocks), and what % of their account capital they use for each trade. I like to only copy traders who have a score of 4 or below.
- Copy Traders with at least 12 months of history on eToro – It takes skill to be able to trade profitably over the long term. That’s why I only copy traders who have at least 12 months of history on the platform. On eToro you can see every trade a user has made and how profitable they have been each month. You can use this info to make a more informed choice on the best traders to copy.
- Copy Active Traders – I like to copy traders who are quite active on the platform. Rather than copying traders who make one or two trades per year. I like to see my money being put to work and not just sitting doing nothing.
- Build a Diverse Portfolio – On eToro you can copytrade multiple people. While this can be quite expensive to get going, in the long run I believe it produces better results.
- Set a stop loss – You can assign a stop loss for copytrading just like you can with regular trading. I set this at -20%.
Getting Started CopyTrading on eToro
- Create an eToro Account (it’s free)
- Verify your account (you’ll need to do this if you’re trading with real money)
- Make a deposit – the minimum deposit in Australia is $50. Although you need a minimum of $200 to copy trade someone else
- Find traders to copy
- Allocate funds to start copytrading
Other options for Trading on Etoro
eToro isn’t just a copytrading platform. You can make your own trades too. And for many people this will be better suited for them – especially if you like having an active role in your investments. Trading can be risky though – so never invest more than you can afford to lose.
- Investing in ETFs – On eToro you can trade ETFs from all over the world. The good thing about ETFs is you get access to a diverse portfolio in just one trade. When you open an ETF or Stock trade on eToro you can trade with or without leverage. I would recommend trading without leverage. This is the less risky option and you also won’t pay any fees (just the spread when you open the trade).
- Investing in a stock portfolio – You can trade stock CFDs from all over the world on eToro. So if you want to trade shares like Apple or Netflix you can. There are stocks from the U.S, Europe and Asia.
- Investing in Cryptocurrencies – Cryptos are one of the most profitable and volatile markets. While you can make money trading cryptos, I would recommend only trading these if you’re an advanced user. Just because they are so volatile.
Try CopyTrading without Risking any Money
When you register with eToro, you are given a free virtual trading account with $100k in it. You can use this money to trade and copytrade under real market conditions. But you’re trading using virtual funds. It’s a great way to test out the platform and see if it’s right for you.
In my opinion copytrading and trading on eToro is more risky than say putting your money into an investment app like Raiz. There is a chance you could lose your money. And for the reason I would recommend only investing what you can afford to lose. Treat it more like speculative investment in the same way you would investing in Bitcoin. It could have a great upside but there is risk involved.
Remember you can try copytrading using virtual money. This way you can give it a go, see how it works, and you won’t risk any actual money.
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. 67% 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.
eToro AUS Capital Pty Ltd, ABN 66 612 791 803 AFSL 491139. CFDs are highly leveraged and risky, and may not be suitable for all investors. You may lose more than your initial investment. Trading CFDs does not result in ownership of the underlying assets. Copy trading facilities cannot be construed as financial advice. Use these facilities at your own risk and we are not liable for losses incurred. You should obtain your own advice and refer to our FSG and PDS before deciding whether to trade with us