One of the most appealing features of eToro is CopyTrading. Copy Trading allows you to automatically copy the trades made by experienced investors. I've been playing around with CopyTrading on eToro for the last few years and here are my top tips for having success.
On eToro there are thousands of different investors you can copy. So how do you find the best traders to copy? These are the things I look for before I start copy trading.
Note – While eToro is available worldwide, this guide is just for Australian users and the Australian version of eToro.
Who to Copy on eToro – My Top Tips
12+ Months of Trading History
I believe that anyone can make a couple of lucky trades. But it takes knowledge and skill to make money trading over the long term. That's why I only copy traders on eToro who have been using the platform for at least 12 months.
eToro will show you how long a trader has been active on the platform and give you a monthly break down of their gains and losses.
I also like looking at the traders history to make sure they haven't had any major periods of losses.
I'm fine seeing a few months of red. All investors have good and bad months. Many traders on eToro have longer term strategies so as long as the longer term trend is positive, I'm happy to copy a trader.
I have come across a few traders who have had 300%+ gains over a year on eToro. When I see this, I dig into the profile to see what's going on. It could mean a couple of different things. It could just mean the investor was heavily trading crypto. Those types of gains aren't crazy for crypto. However because there is also the risk of similar losses in crypto, I wouldn't be too interested in copying that type of trader.
Another explanation could be the trader using too much leverage. Leverage is powerful when used correctly. Newer traders will often use too much leverage. They will have massive gains but they'll lose it all in one trade. You don't want to be copying a trader using such a risky strategy. Buy luckily eToro gives a risk score to help filter out these traders…
Low Risk Score
eToro gives each investor on the platform a risk score. I like to copy traders with score of 4 or less. The higher the score, the riskier the trader. I do believe that eToro is now limiting people from being able to copy traders with a high risk score. This is a great thing!
I actually like copying traders who have made losing trades! If a trader is profitable over the course of a year or more but has a number of losing trades that have been closed, I view this as a great sign. This mean the trader has a strategy and they are closing trades when they deviate from the strategy. In the world of trading, nobody is perfect. Everyone has losing trades. What makes a great trader is being able to close the losing trades before they wipe out a portfolio. So don't be put off if you see a trader who has a few losing trades. That can be a great sign.
To see a a traders history, visit their profile. Then click on portfolio and then select “History” from the dropdown.
One trader (Flora008) I came across when putting together this post had a gain last year of 42% and this year a gain of 12% (so far). Of the trader's past trades, only 9% of those were profitable. This is a bit of an extreme case, but it just goes to show a trader can have success even when they have losing trades.
Check the Strategy
The top traders on eToro fully explain what their strategy is in their bio. I'm not too interested in copying an investor who is just investing in ETFs. I feel like I can do that on my own. Although I'm sure there are many newer investors who would love to copy this type of trader. So I recommend just checking what an investor is trading. And whether their strategy matches up with your investing goals.
What you need to know about Copy Trading
Minimum investment to copy trade on eToro
To copy a trader on eToro you'll need at least $200 USD. You can deposit AUD on eToro, but it will get converted into U.S dollars. Some traders will recommend you copy with more money. I believe this is so that the copied positions don't end up being too tiny. I however haven't had any issues copying traders with just $200.
You can copy multiple traders on eToro. This is a great way to spread the risk. You can also set a stop loss. If a copied account draws down too much, you'll automatically stop copying. When you copy multiple traders, your money will be put to work across potentially hundreds of trades.
How copying works
Trades are copying using matching ratios. So if a copied trader opens a position using 1% of their account capital. A position using 1% of the funds you allocated to copy the trader will be used to open the trade. This is great! Some copy trading platforms open positions using matching lot sizes. On eToro the trader you are copying, most likely has an account balance with $50k+ in it. But you can copy this trader with just $200. Your trade sizes will just be much much smaller. But the gains or losses will match the copied trade!
Building a Diverse Portfolio on eToro
eToro isn't just a copy trading platform. I use eToro to invest in a portfolio of stocks and ETFs. You can build a portfolio of stocks, ETFs, copy trading and even crypto.
eToro also offers an automated product called copy portfolios. These are themed investments and beyond the scope of this post.
On eToro you can invest in real stocks and CFDs. If you do choose to invest in CFDs, just remember they carry additional risk. 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.