Social trading platforms such eToro are instrumental in providing beginner traders their first foray into global financial markets.
eToro: The Real Social Trading Platform
This article will explain what eToro is, how it works, how you can earn from it and why it should be part of your online trading strategy.
What is eToro?
eToro is the largest trading network in the world. It first started as an online trading broker as early as 2006 and was the first to introduce the concept of online social trading with the launch of the innovative OpenBook trading platform.
In 2015, eToro merged its web-based trading platform with its OpenBook platform and the product has been a new intuitive and user-friendly platform that is fully responsive across all devices including PC, mobile and tablet.
The most interesting feature on the trading platform is CopyTrader, which enables traders to find other traders, follow them, view their most recent trades, and automatically copy these trades.
By joining the platform, anyone has the potential to be copied by other traders and to copy other traders, as well as learn from each other.
How does eToro work?
eToro works both as an ordinary online trading platform where you can trade forex, stocks, commodities, ETFs and indices, and as a social trading platform where traders can maximize their earnings by copying each other’s’ trades.
So, eToro works by allowing you to:
· Copy other traders
· Trade on your own
Trading on your own
Ideally, you should start trading on your own after you have had some success copying others. While you do not need extensive experience to start making your own trades, you need to put in more effort in researching and analysing the markets.
To place a trade on your own, follow the following steps:
In your News Feed or trader’s interface, click on ‘Markets’ then select your preferred trading instrument e.g. ‘stocks’ and then select your preferred industry for example ‘technology’. This will show you a list of all the available stocks in the technology industry including their prices and how the prices have changed over time.
Next, once you select the stock you want to invest in, click on ‘Trade’ on the upper right corner of the trading interface.
Then, enter the amount you want to invest, e.g. $100 and then select ‘Set Order’.
That’s it! You have placed your first trade on eToro.
You can choose to keep the position open for as long as is necessary or close it and sell your position when you deem it profitable.
It is recommended that you only start trading forex, commodities and indices after you are familiar with stocks. Compared to stocks, these other trading instruments are much riskier.
How are you rewarded?
On eToro, you can be rewarded by placing your own successful trades or when other people start copying you.
As soon as you start placing successful trades and people start copying you, you can start earning a monthly commission of up to 25% of the earned revenue. The more copiers you have, the more commissions you earn, with no limit to your earnings.
Traders who are managing more than $300,000 worth of trades earn up to 2% of the amount they are managing annually. To start earning at this level, you obviously need to be an elite trader.
On the platform, you will come across people who have earned the title, ‘Popular Investor.’ These are simply traders who are active in the social community and have a good number of traders copying them. You too can become a popular investor once you start performing well and others begin copying you.
How much will you earn?
The amount you earn will depend on the number of copiers you have. You will receive a fixed monthly commission that could go up to 25% of the earned revenue.
Elite traders get commission free trading i.e. they do not pay spreads and they also earn 2% annually on the amount of funds they are managing.
How to select traders to copy
The simplest way to invest on eToro, especially if you are new to online trading is copying other traders. When you copy another trader, each trade they place is automatically opened in your own account and closed when they close their position. You will receive same rate of return as the trader you copy.
To make the most of the social trading platform, you need to select the right traders to copy. To find the best traders to copy, follow these steps:
On the eToro sidebar, click on ‘People’. This brings you a list of popular investors and promising investors.
Alternatively, you could use the advanced search feature that allows you to use specific criteria to find suitable traders to copy.
One you select the traders you want to copy, you need to choose the amount to invest. You need to invest a specific amount to copy a trader but you cannot invest all your money in a single trader.
You can minimize the risk involved in copying others by applying stop loss, which allows you to automatically stop copying a trader after a certain amount of loss has been incurred.
Your trades will be copied automatically and they will be proportional to the trader you choose to copy. For example, if a trader invests $2,000 and they have $100,000 in their account, they have risked 2% of their capital on a trade. This means that if you had invested $100 in the trader, you will risk just $2 in your account.
What should you look out for when selecting a trader to copy?
· The trader should have traded on eToro for at least 6 months
· Their profile should show that they have extensive trading experience
· They should show a thorough understanding of the market
· They should at least have less than a 10% loss rate daily and weekly i.e. the drawdowns should be low
· They should have realistic rate of returns; anything overblown like 500%+ returns is a red flag
· Their win rates are equally realistic i.e. the win rate is not 100%. Prudent traders make losses sometimes because they know how to identify risk.
Tip: Two really important things to look at when deciding whether to copy a trader is the risk score and the weekly drawdown. The risk score shows you the amount of risk a trader usually takes while the drawdown shows you the number of times the trader has lost trades throughout the week.
You do not have to copy each trader. You can just ‘follow’ others so that you can keep up with their updates on your News Feed to determine whether you want to go ahead and copy them later.
PROS: Why you should be on eToroRevolutionary trading platform
Personalized News Feed
Diverse trading instruments- Currency pairs, indices, stocks, exchange traded funds (ETFs).
Fully functional demo account
Traders risk their own money
Transparency in popular investors’ real identity
Low slippage amount
Risk and money management tools