Here is a detailed information on how to invest using the eToro Social Trading platform. This method can be used by anyone and is appropriate for investors who don’t really have a concrete knowledge of the financial market but want to profit from it.
First of all, What is Social Trading?
Social Trading is a service where online investors make use of user-generated content to trade online. Basically, social trading involves traders trading with the help of other traders on the network.
In every standard social trading platform, there is a unique feature called Copy Trading. As the name suggests, copy trading is imitating the trades of a professional and experienced trader automatically in other to build your portfolio. With this format, the novice traders can reduce their learning curve and prevent many potential risks.
However, when considering using this feature, you need to make your choices diligently. Choosing the right platform and a well-performing trader plays a great role in copy trading.
Speaking about the right platform, one of the best and leading social trading platform at the moment is the eToro Social Trading platformwhich is why it is the most used and preferred platform by most investors including myself.
How To Get Started
1. Sign Up For an Account on eToro
Signing Up for an account on the platform is very straightforward, all you need to do is visit the official site >>eToro.com<< Click on the Join Now Button after which it would take you to the Sign-Up page which looks like this.
After Signing Up and completing your profile, the next thing to do is to make a deposit of the amount you would want to invest. The minimum deposit allowed on the platform is $200 which means investors can only invest $200 and above.
Note: Prior to making any investment decisions, you should consider your own personal circumstances and risk appetite.
3. Get To Understand the Platform
To be able to use the platform properly, it is essential to first familiarise yourself with the platform. I would give a brief explanation on how to navigate through the platform and use the available features
This section helps you organize the markets you’ll like to keep your eye on as well as the people you would like to copy and invest in; subscribe to live council and trade. You can as well create several other custom lists on the watchlist according to what you’ll like to keep your eyes on.
You can as well create a collection of markets and style based on your trading strategy and style.
This is where you can see and monitor your range of investments as well as active trades with live tickers, pending orders and trading/withdrawal history. You can also manage, sort, filter, edit and close any of your active investments.
This is like your social media timeline, where you see what traders you’re following are saying at the moment.
Here you can research or find markets you’re interested in or would like to trade. The eToro Trading platform has a whole lot of assets accessible to their traders ranging from currencies, indices, commodities, stocks, ETFs and Crypto.
This an eToro portfolio management product that allows you to follow and copy traders. With this feature, investors can search for traders, they want to copy. There is an advanced search section which comes with a filter allowing an investor to narrow down to the results based on the type of trader they would like to invest with. We would be focusing majorly on this product as this what the topic surrounds.
Invest in CopyFunds
CopyFunds is a portfolio management product by eToro which allows a trader to automatically copy multiple markets or traders based on prest investment strategies.
Complete Guide on How to use the eToro ‘Copy People’ Tool
This is where the actual deal is as it is where the investing comes to play. I would walk you through how to go about it and the dos and don’ts of using the ‘Copy people’ tool.
Finding The Best Traders To Copy on eToro
Here is a step by step process on how to find the right trader to copy on the eToro Trading Platform
First, you navigate to the ‘Copy people’ section from the sidebar on the eToro trading platform.
After clicking the ‘Copy People’ you’ll be taken to a section where you can see different categories of traders to choose from.
There is also an advanced search section above, where you can search for traders based on some certain criteria.
On the advanced search feature, all text in blue with the downward arrow can be adjusted to what you want before hitting the ‘GO’ button to search.
How To Check a Traders Past Performance
One very essential thing to do before copying any trader is to check the trader’s past performance. One thing to bear in mind is that a trader’s past performance does not guarantee future resultsalthough it gives you an insight into the traders trading experience as well as what to expect in the future.
This is my eToro account stats below. Starting from October 2017 to September 2018, if you’ve copied me with $200 you would have been up $274.1 and if you’ve copied me with $10,000 then you would have been up $13,705.
Note: Know your risk appetite and only invest an amount you’re comfortable investing with.
Two other key metrics to look at when checking a traders trading performance are the trader’s risk score which is an indicator that shows the level of risk a trader is taking and the max drawdown which from the name explains itself as a metric that shows the drawdowns of a trader on a daily, weekly, monthly and yearly basis.
Personally, I do not involve myself with traders having a risk score higher than seven and also, its necessary to remember that the risk score is based only on a trader’s prior performance, and does not indicate expected outcomes.
How to Copy a Trader
To copy a trader on eToro is very simple and straightforward. Once you’ve found a trader you would like to copy, all you need to do is open the trader’s profile and click the ‘Copy’ Button which would prompt you to a page like the one below.
Here you can set the amount you want to be allocated to the trader for copying and a stop loss for your capital as well. I personally set my stop loss to 30% of the total capital allocated.
How To Monitor Your Portfolio
To monitor your portfolio, all you need to do is click on ‘portfolio’ and you’ll be taken to the portfolio section where you can see all your trading performance. You can open and close a trade from here as well as get access to all your trading history.
Qualities to Look for in a Trader You Want to Copy
- The first thing to look at is the trader’s profile, the trader should have a very decent profile with a profile picture and also, a good impression of their market knowledge should reflect on the feed.
- The trader ought to have been active for nothing less than 6 Months
- Don’t have risky returns. A trader with crazy returns like 800%+ in a short period of time is very risky as it shows how careless and less disciplined the trader is and that can put your capital at a very big risk.
- Good Communicative skills. When a trader communicates really well, it shows that they have concrete knowledge on what they are doing and also, you can easily learn from them as well as get familiar with their trading system.
The Most Common Mistakes To Avoid
One of the most common mistakes made by newbies when it comes to copy tradingis copying traders because of the number of copiers they have which is a very wrong approach to choosing the right trader to copy.
Any newbie would think a trader with a lot of copiers is the best bet and is making himself and those copying him a lot of money, which is possible, but what if that’s just for a short period of time and the trader is not consistent?
Also, the trader being copied might be trading a large account and small losses on his account can lead to wiping out accounts with little capital. There are a whole lot of reasons not to follow any trader blindly and the best thing to do is make proper research before deciding to copy a trader.
Things To Avoid when Copy Trading
1. Overtrading — Trading should be about waiting for the right opportunities and not just chasing trades carelessly. Overtrading would help you accumulate fees and can cause you to lose your capital.
2. Poor Money management– Every trader should have a proper money management strategy. Although, anyone can have a good money management strategy however what matters is being disciplined enough to follow the strategy strictly.
3. Excessive Leverage — Using leverage is good and can be bad if not used with caution or used excessively.
4. Failure to Implement Stop-Loss Orders — The aim of the stop loss is to limit the loss of a security (buy or sell) position and not using it simply means you’re putting your capital at risk. Even at that a lot of people especially beginners fail to use the stop-loss orders which is very bad.
Disclaimer — Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) is highly speculative, carries a high level of risk and is not appropriate for every investor. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.