When it comes to trading on eToro or using its social trading features, we encourage responsible behaviour among all our users. Our responsible trading policy calls traders to protect themselves from emotional decision making that can result in taking unnecessary losses.
Novice traders, in particular, tend to rely more on “gut feelings,” because they don’t necessarily have a lot of experience in financial trading to make rational and informed choices.
Here are some examples of how to identify if you’re going by “gut feeling”:
- Maximum Leverage: To a person unfamiliar with the foreign exchange market it may seem like a good idea to start online trading with the highest leverage to maximise profits, whereas, in fact, it exposes their position to maximum risk.
- Portfolio Diversity: It is important to diversify your portfolio to reduce risk. Some traders stick to one asset-class or focus on foreign exchange pairings all around the same asset (such as USD/GBP and USD/JPY), which exposes them to more risk.
- Ignoring Risk Scores: When copying other traders, some copiers only look at recent returns and ignore the Risk Score. The higher the Risk Score, the higher the likelihood of a deal backfiring.
Responsible Trading Policy
Since the launch of our responsible trading policy, we have noticed a significant improvement in online trading results and trader longevity.
To help traders avoid making rash online trading decisions, eToro recommends the following:
- Maximum leverage of 1:50 for any given trade
- Place no more than 20% of your equity on one trade
- Allocate no more than 40% of your total balance to copy one trader
The key factors of smart investing are low leverage and portfolio diversity, a fact attested to by the portfolios of the eToro social investment platform’s top traders.
Here are some tips for becoming a more responsible trader:
- Only invest in what you know: Don’t follow random tips or gut feelings. If you want to invest in a certain asset, familiarise yourself with its history and tendencies.
- Look at your Risk Score: Your unique Risk Score is a great way to see if you are a responsible trader. Keeping a Risk Score of 3 or lower on eToro is recommended.
- Adjust your portfolio: Diversify your portfolio with assets across many classes. If you don’t want to monitor your portfolio frequently, opt for lower-involvement instruments, such as CopyFunds™ or our CopyTrader™ system.
- Copy other responsible traders: When you copy another trader, look at their Risk Score, history, and portfolio diversity.