Many investors joining the eToro platform are hoping to make a certain return trading but many times do not have the knowledge, time and skills to trade themselves. CopyTrading on eToro comes in as a handy innovative option for those interested in making a potential return on trading financial assets bumint not willing to invest time and effort in doing so by choosing to copy other well-performing traders instead ( please note that there is always an associated risk of loosing capital while trading).
Every trader joining the eToro platform and choosing to copy a trader rather than actively trading themselves questions how much money they could possibly make doing so. Certainly, there are many factors that influence the return you make by copying others (which could also be negative), including the risk-return ratio, volatility of the traded assets, time and compounding frequency, consistency of returns and the amount of capital you invest into them initially, but it is always possible to point out the most important ones. Let’s break this down step by step below.
(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 67% 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.)
Making a Return by Copying a Trader
It is best to start by considering an example of a real life trader from the image below.
They managed to make 6.63% of return in the latest month of December this year so far. You can always see these performance overview in the ‘Stats’ section on eToro. Is that latest month percentage a good indication? Well, as you may know returns are subject to great volatilty and vary from month to month. Predicting how much a trader will make in each particular month is very hard if not impossible; the trader above showed quite good returns in most months but there also have been a total of 3 months with losses. What one might be looking for in a copy trader then is consistency in generating a return so it may be a good idea to consider gains a trader made over a period of time of one year to essentially average out their results. The trader below managed to make a return of 51.90% over in the last 12 month, which makes an average of 51.90/ 12 = 4.325% per month. How much money could this mean to you?
If you have invested 1000$ dollars (that is of course an arbitrary amount and is entirely up to each user) into them that would have given you 43.25$ in monetary terms on average per month, if you have invested 5000$ that makes it 217.5$ and so on.
Well, as we have seen above your monthly return depends on the amount of your original investment (apart from the actual performance of the CopyTrader), and that in turn depends on how much you are aiming at making. Therefore you need to determine how much money you would like to receive monthly on average. Let’s say that you want to receive 100$ from copying a trader that makes 4.325% on average per month, that means you should have invested as much as 100$/ 0.04325 = 2 312.14$ initially, as determined by a simple proportion. If you only need, let’s say, 50$, then you need to invest less, 50$/ 0.04325 = 1 156.07$ and so on accordingly. Beware that this is the amount you are hoping to make given a trader’s average performance, which of course could vary from month to month as well as be negative at times.
As you can see, it is the amount of capital invested into copy trading that impacts the monetary return you make on doing so as well as the trading success of the trader you are copying. Please do bear in mind that more capital invested allows potentially for a greater profit in monetary amount but it also means greater risk taking. Also, an average is a good indication of performance but these results do vary from month to month and as we have seen there is a chance for losses too.
When you are looking for potentially higher results, you might perhaps be considering traders that trade with a higher associated volatility (bear in mind that higher volatility also means a higher chance of losses). Have a look at the list of traders below.
The trader with higher risk rankings of seemed to have many times generated higher returns too, but the risk they are taking can lead to equally large losses, unless the trader is extremely good at managing their stop-loss levels in trading.
It is a common trail of action for new traders to copy the most popular traders rather than actually analyze whether their asset portfolio, trading style and strategies align with their own preference and long-term goals. The extent to which you are willing to expose yourself to greater losses in exchange for a possibility of higher returns is personal to you and depends on the degree of your risk aversion as well as the available capital for that purpose. Each trader needs to be able to find a balance between their seek for profits and the associated risks they are willing to take.
A Note on Fees
eToro doesn’t charge you any fees for copying another trader. Do bear in mind that there is a minimum amount you need to invest of 500$ for you to be able to copy another trader and there is furthermore the bid-ask spread charged by the platform which applies to trades made under copy trading too. Finally, any time you want to withdraw any funds from the platform you are charged with a withdrawal fee to do so.
Once you start making a certain return from copying a trader it becomes more and more tempting to withdraw this money from your account. However, by doing so you might miss on taking the advantage of compound interest as account growth can also be achieved with re-investing profit alongside positive returns. In this case you may consider taking out a certain amount out of your account to cover for certain expenses, this being only a fraction and not the entire amount. This would allow you to cummulatively make more and more money, given that the trader you are copying keeps generating positive gains (which, as previously mentioned, are not guaranteed). Do not forget the risks associated with putting your capital into copying a trader and past results are not necessarily a gurantee of future performance!
In case you are not 100% sure in the investor you have chosen to copy, you may consider diversifying your investment and splitting the capital between several CopyTraders. You can then perhaps choose traders with different risk rankings to curtail the total amount of risk exposure. Some traders aim to seek short-term profit opportunities and do not mind exposing themselved to a little more risks. Other investors are solely interested in long-term persistent performance and relatively ‘safe’ strategies (of course no strategy is ever completely safe in trading) for steady returns. By choosing to invest into several different investors you have a chance to receive small but relatively steady returns but also not miss out on short-term opportunities spotted by relatively experienced and informed traders.
You can likewise choose to diversify you investment not only on the basis of risk but also on the type of assets or markets traded. This will help reducing the negative impacts of idiosyncratic (unsystematic) shocks and potentially generate profits from several industries.
So as we have seen, the amount of money you make by copying someone certainly depends on who you are copying, but it also depends on the initial amount of capital you have invested in them. The returns the trader you are copying makes depend on many factors and the risk they are taking on. Always remember the risks of capital losses associated with CopyTrading and enjoy trading on eToro! Best of luck.
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eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, 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. 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.
Past performance is not an indication of future results.
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.
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