I’ve been experimenting with the CopyTrading platform eToro. It let’s you automatically copy the trades made by more experienced traders. Here are some of the things I’ve learnt while using the platform:
What is CopyTrading
CopyTrading is where your trading account automatically copies the trades made by more experienced traders. Trading is hard. So why not let someone who does it for a living do it for you.
When you copytrade, whenever the copied trader makes a trade, your account will make the same trade. If the trader buys some Apple Stock, your account will too.
With eToro, you can browse through the profiles of thousands of traders. See how well they have performed in the past and how profitable they have been. Here are some of the things to look out for when copying traders:
My Top CopyTrading tips:
- Copy Traders with history – On eToro you can see all the trades a trader has made in the past. Plus it’ll also show you a % gain breakdown. I only copy traders who have at least 12 months history on the platform. That way I know if they have been able to deliver consistent returns or just got lucky for a month.
- Copy Low Risk Traders – eToro assigns a risk score to each trader. I like to copy traders with a risk score of 4 or lower. The lower the score the less risky eToro thinks that trader is. The score is based on the trading style and the markets a trader trades in.
- Look at the past trades – Look to see if the trader is making lots of trades or just one or two. I don’t want to copy someone who has only made two trades in a year.
- Don’t copy super high gainers – This usually indicates a risky trading strategy. The trader might get lucky for a few trades but then they might end up losing it all. It’s better to copy traders who have gained 10-20% over the past 12 months. That’s a reasonable return.
- Diversify – You can copytrade multiple people on eToro. This way you can reduce some of the risk. I strategy I like to do is also investing in ETFs on eToro. That way I have a more balanced portfolio.
For me it’s a more risky investment compared to Raiz or Spaceship. With these products you are invested in a very diverse portfolio and they have low fees. They are both Australian companies as well. eToro is more for speculative investments and trading. Don’t invest your life savings. If you’re a trader with experience, it’s an excellent platform that is well designed and easy to use. The copy trading features are unique. I think we’ll see more products come out with these type of social features.