How to trade successfully with eToro CopyTrader?

eToro is a social trading platform which allows you to not only interact with other users but also replicate their trades using the innovative CopyTrading feature. There is a wide variety of traders for you to choose from, varying in the degree of risk their trading strategy involves and the amount of leverage they use, trading style and frequency, the type of markets and instruments they use and so on. While copy trading seems to be a great option to generate passive income without investing too much of your own time researching, monitoring and rebalancing a personalized portfolio, it is no guarantee of absolute success and there are quite a few things and dangers you might to consider before investing your money.

(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings.  In fact, Around 68% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)

Things to look out for in CopyTrading

There are many things you might consider in the process of copytrading and here are some of them.

1. Diversifying your investment into multiple CopyTraders

Even if it may appear that the trader of your choice is demonstrating consistent results, past returns do not guarantee positive performance in the future. There are always days or even months where returns may be negative and you risk loosing your account balance if you have invested fully into a single trader. You might consider investing into several traders instead and diversify based on, for example, they risk ranking or the markets they are trading and if that suits your goals of course.

To speak in more practical terms, you might be interested in reaping the profits of short-term market changes and hence choose to replicate a highly risky trader. Because of the great market volatility and unpredictability of its movements there is always an equally high chance of losses as well as profits. You might choose to balance out those risks by placing part of your investment into a trader who makes less risky positions and uses less leverage to do so.

You can also choose to diversify your choice of traders based on type of assets traded; perhaps one CopyTrader focuses mainly on cryptoassets, so another trader of your choice may trade stocks or indices instead. You may likewise want to base your diversification on the industries the trader focuses on; say the trader of your preference invests heavily into the IT industry, so you might want to invest part of your balance into a different industry to avoid losses in case of a downturn in the technology market.

2. Researching well the trader you are going to copy

Many times newcomers who only recently joined the platform choose to copy most popular trending CopyTraders or the ones who demonstrate the best recent performance without carefully analyzing what they are investing into beforehand. Investing into most popular traders does not guarantee results and one should certainly invest time and research into analyzing a CopyTrader’s performance statistics, their trading history, their portfolio composition and description of the strategy. This should help ensuring that their investment horizon and trading style suits your own outlook as well as establishing investor’s relative trustworthiness.

A CopyTrader should provide a description of their strategy in the bio and you can have a look at their trading statistics.

3. Practicing on your demo account before investing your real capital

Many times traders starting to use the CopyTrading option on eToro readily invest their real capital without actually using the unique and useful feature of a demo account provided by the platform. It may be a good idea to start copying an investor you are perhaps not sure about or want to see if they are well-performing indeed on your practice account to see how they are actually trading without putting your own money at risk right away. You can always choose to use your demo and real account alongside each other at the same time in case you want to test your selection of copytraders before for example adding new CopyTraders or exiting.

4. Analyze CopyTrader’s trading style

It is always a good idea to look at investor’s trader’s style, the type and frequency of positions they open. Many low-risk traders have a long-term investment outlook and make relatively few trades only to adjust their portfolio slightly and generating low but stable returns. If you are looking for quicker short-term profits instead you may consider an investor who’s trading style involved more frequent trading, let’s say a few times a week, which have a potential to generate results at a faster pace.

5. Be careful with new users of the platform

As you might have realized, one does not need a long trading history on the platform to become a popular investor. One needs only 2 month to become a Popular Investor and 4 months more to move up a tier and that is a very short time period to demonstrate consistency. Although there is a chance a new trader on the platform has sufficient knowledge and previous experience to demonstrate stable results in the future there is literally no way for you to see their long-term performance on the platform other than their few month of trading and the accompanying statistica. There is always a chance their successful performance in the latest period coincided with favorable market conditions rather than being a well crafted strategy. This is not necessarily an advice to stay away from newcomer but rather a note of warning to spend additional time and research analyzing their strategy and portfolio composition.

6. Risk Ranking

Risk Rank is a custom made statistic on the eToro platform which indicates the overall degree of riskiness of each trader’s positions. Traders with too high of a risk rank tend to use a lot of leverage, they do not diversify sufficiently or invest too much into a single trade. This may not be a problem for a skilled and knowledgeable trader but as markets are volatile and unpredictable it becomes increasingly hard to manage trades successfully with too high of a risk level. Hence you need to consider your own willingness to accept different levels of risk and potential losses in hope of a quicker and larger short-term return in case of choosing a high risk ranked trader.

7. Asset diversification

Many times traders choose to copy investors focused on stocks of various popular companies. If you are considering a wider and a well-diversified portfolio however you might consider traders investing into different types of assets such as cryptocurrencies, commodities or indices. It is definitely not a necessity but perhaps an option with a profit potential to consider.

8. Profit reinvestment

Many times traders who make a profit after copying someone for a period of time are tempted to withdraw the earnings and spend them on not necessarily needed things. While doing so the investor foregoes the benefits of compounding and reduces their account’s growth potential. The process of reinvesting profit or maybe a part of it is importanct in long-term wealth creation and compounding has a potential of amplifying greatly your returns. You can always use the compound interest calculator to derive the final amount of your investment and use average return of a CopyTrader as the interest rate. Reinvesting earnings from copying a trader allows you to exponentially grow your account as the return will be generated both on the original investment as well as the accumulated returns you have made so far.

9. Exiting at the right time

Certainly every successful trader may have bad periods from time to time, yet if they persist for a long time a CopyTrader might consider adjusting their strategy, asset selection and technique. Stopping copying someone you have been following for a long time period is difficult psychologically but it may be necessary if they are taking on too big of a markdown and seem to be unable to generate desirable results or adjust to unfavorable market conditions.

10. Consider CopyPortfolios

CopyTraders are not the only social trading option available on the eToro platform, there are different CopyPortfolios available too, as you can see from the image above. CopyPortfolios are thematic assemblies of well diversified assets that represent a single ready-made investment product with many positions opened at the same time and constant portfolio rebalancing happening. Because of the complexity of monitoring, researching and rebalancing these portfolios investing into a CopyPortfolio requires a higher initial amount of 5 000$ and are generally considered to be a long or medium term investment. CopyPortfolios are a good option that allow to diversify your investment, allow for a slow but consistent growth and a long-term return which you may consider as an alternative option to just copying one or several traders.

It should clear by now that despite CopyTrading being a passive form of generating a return, doing so still entails a certain amount of risk and required caution in execution. There are quite a few things to watch out for while copytrading, mainly ensuring there is enough diversification, trader’s strategy and the associated risk levels are acceptable to you. Hopefully the above presented information will help your performance in CopyTrading and you can enjoy using the eToro platform!

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eToro is a multi-asset platform that offers both investing in stocks and crypto assets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% 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.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorized and regulated by the Cyprus Securities and Exchange Commission.

Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.