The internet has been a great leveller and no more so than in the realm of finance. In the early years, access to the markets was almost exclusively the territory of large financial institutions and wealthy clients. In the olden days before the web Buying or selling any financial instrument involved telephoning your broker and speaking to them in person. The whole process could take anything from a few minutes to a few days depending how reactive and available your broker was.
Not surprisingly, for private investors, dealing in this way was very expensive , time consuming and not without risks. In those days, the idea of day trading the markets with a few dollars was unimaginable. Because of the manual process involved, brokers were only interested in dealing with clients holding accounts worth millions of dollars. In other words, you can have your own team of traders working for you. Not only that, they are working for you for free.
How is that possible? With a copy trading. But there are plenty of alternatives to choose from. Before I get into copy trading per se, a bit about eToro the company. If you invest in eToro, nobody will ever know how much your account is worth — unless you tell them. On the profile page of every trader, there are two actions that you can choose. If you choose copy , you will automatically copy, like for like , every trade executed on their account.
We always test out several scenarios: Everything happens automatically and transparently — both for you and Bob. Just like when you buy units in a mutual fund or a PAMM account, the amount allocated to trader Bob will increase if he makes a profit. Of course, if he made a loss, the amount would reduce. One drawback is that you have no way of knowing how much of their own money a trader is playing with. Note I advise great caution here. Always review the open trades as well as their full history — if those open trades are all recent, all well and good.
However be wary if there are historical trades going back several months with unrealized heavy losses. These are most probably bad positions which the trader entered into in the past and is reluctant to realize the loss on. The last thing you want is to take on these losing positions. Having lots of unrealized losing trades could also be a sign that the trader is misjudging their entry points — you might want to reconsider copying such a trader.
If you think the positions are recoverable, you can always copy them and take control yourself. This is important since you may be able to manually close with profit, which the trader would be unlikely to do if he mistimed his entry point and is sitting on a large loss. If you do copy such trades, I advise entering your own stop losses and take profit levels which will automatically remove the copy.
Fortunately, I have some pointers which will help you to select those traders who are most likely to deliver consistent, profitable returns over the long term.
Here are the criteria I use:. In addition the quick settings will take you straight to commonly searched screens, such as high return, low risk.
You can apply these settings to any of the given time frames. When reviewing a trader, always check their trade history to make sure their performance is consistent. In all likelihood, this will have been down to a few small, but highly leveraged trades that went their way always check their performance chart for smooth, consistent returns. Remember You have no way of knowing how much of their own money a trader is playing with.
For all you know he or she could be using pocket money. However, before doing so, always check precisely who they are copying look in the portfolio section to make sure you are not duplicating trades by copying the same person more than once.
Naturally you should aim to diversify your portfolio of copy traders. For example, you might want to allocate a higher amount to consistent, but lower profit traders, and a smaller amount to high-risk speculative players.
In fact, this is one of the advantages. If done correctly you can diversify across markets and strategies. In this respect, copy trading is like using a managed mandated account or investing in a number of funds. If you think about it, the implications of this are far reaching. Apart from the performance fee, they win in any case — regardless of whether you do! Their interests are not fully aligned with yours.
Not only that, many of the top funds only allow purchase or redemptions monthly, some even quarterly. In the financial crisis of investors discovered to their dismay that many of these highly paid investment managers where simply not worth their salt.
Given the alternatives, now and beyond, people then ask why trust your money to a highly paid team of investment managers and middlemen? Copy trading is only as good as those people you select to trade on your behalf. It also means you will need to be more involved with the whole process. For many people, trading is both a means of making money, as well as a challenge. For these people, they may see copy trading as taking the fun away.
Though when the system works it can be seen as a new and important alternative to managed investments. Banks and other financial institutions are no longer essential conduits to lending, borrowing and the capital markets.
And any system which offers investors a better deal has to be a good thing in my opinion. Open eToro Practice Account. Max Drawdown is probably the most important stat although no statistics must be read in isolation.
DD should be compared to returns, risk and time period. It is also a good indication of the robustness of the method.
This is not true. If you understand trading some of the best methods have a poor winrate but with wins far bigger than losers they end up with great results. A high winrate should actually be a warning sign as it is sometimes indicative of traders hanging on to losing trades or trading without a stop.
There are many ways to lie with statistics in order to get followers. This industry is full con-artists.. You make a very compelling case for using etoro over a fund manager — but one of the key advantages I see of a fund manager is keeping your own time free. At least when working with an investment manager you can get on with other profitable — or fun — activities! Given you can invest with a few tens of dollars this is of interest to quite a few people.
Yes you are right the time involved can be a problem and should be taken into account. So whats the point of those asset managers. As long as I see, there are no professional traders on eToro. Risk and reward of social gurus on eToro is insane. My friend is a full time professional trader. Their risk is way wider than reward. Risk must not exceeds reward.
If their risk is larger than reward, that tell us that they are not sure about their trading i. You can learn how to trade in the internet. There are tons of source for free. I think something really important that would be required to succeed in etoro is having a way of scrutinizing the top gurus so that one knows who to really copy for sure.
Some top gurus, especially those who are high risk traders make lots of profits which are shortly afterwards followed by huge losses. People should know that high risk trading is for the expert traders with over 10 years of experience in trading. In my opinion, I would rather copy a low risk trader who has good trading records. I may not make much copying him, but at least i would be sure that my account would never get drained overnight!
In this case the secret would be copying someone who has a capital close to yours. All the same let me accept that etoro has a very easy trading platform. I used the copy trader for about 1 year. The wins do not last because they take big risks to get to the top of the rank list.
And those who copy them pay the price! If you just start copying them at that point you see a big fall and have to place trust in them to make the recovery!
As far as learning forex I think etoro is one of the best. As for getting rich, I doubt anyone there is doing that except etoro themselves and maybe a few top gurus. The guru can add his own funds as well as etoro earnings into the account. This allows him to move stops down and go on trading even when all of his copiers have been wiped out. The other thing that bothers me are the wide spreads so you have to be up 5 pips or more just to be in profit.
So if your bank account is not in USD they get you again with the deposit and transfer exchange rates. On the good side i find the etoro social area very addictive. Reason is i like to get the opinions of a lot of other traders it helps to get a wider viewpoint on what is going on. When Bernanke speaks everyone has one opinion or other.More...