Both experienced and novice traders may benefit
from social trading. Copy trading platforms help
new traders gain from the wisdom of the crowd.
It also allows experienced investors to share their
knowledge and skills for income. It gives everyone
the chance to benefit from an exceptionally wide
range of trading.
Before you start social trading, you’ll have some
decisions to make. Which platform should you use?
What should you trade? What is the easiest way to
trade within your risk tolerance and goals?
Choosing a Trading Platform or Broker: The kinds
of securities you want to trade influence your
choice of trading platforms. Online stock brokers
may not offer you the versatility of CFDs or trading
in currencies, commodities, or cryptocurrencies all
on one site. Traditional brokers can’t give you the
advantage of building off the wisdom of the crowd.
Chances are you want an online trading platform
that is entirely based on or accommodates
CFDs. This gives you the freedom to trade assets
from many countries as well as currencies and
commodities, and even cryptocurrencies like
Bitcoin. Additionally, you see benefits in a platform
that lets you watch other traders so you can build
on their knowledge. Check out how easy it is to
copy the trades of others. Learn the fees each
platform charges for trading.
You also want to know the ways the platform
safeguards your investing. Do they easily let you
set stop losses? Can you exit a trade at any time,
even if it was put on by a trader you are copying?
How fast are their executions of the trades? With
trading, some losses are inevitable, but some
trading platforms are set up to limit leverage
and offer other protections to safeguard traders.
You can also have more trust in a brokerage that
complies with financial regulations.
Checklist for your best trading or investing
Trades the financial instruments I am
interested in - currencies, commodities, stocks,
cryptocurrencies, ETFs etc
Offers a social network to chat with and learn
16.1 Getting Started Trading
from others
Supports responsible trading with risk reducing
Allows traders to copy other experienced traders
Offers thematic investment funds
Registered and compliant with national or
international securities regulators
Most platforms make it easy to sign up and they
are available in many countries. One notable
exception is the United States. Other countries that
may not permit social trading include Japan, Iran,
North Korea, Myanmar, Syria, Cuba, and Sudan.
eToro trades in over 160 countries. If your country
prohibits trading or the platform does not offer
services in your country, you’ll see a message that
says something like: ‘We’re sorry, but we currently
cannot accept clients from your country’.
Why not the USA? The FATCA (Foreign Account
Tax Compliant Act) the USA put into place in
2014 requires all foreign financial institutions to
report assets held by US citizens and entities. The
paperwork is onerous and many platforms don’t
want the work. Also, the Dodd-Frank Act prohibits
hedging trades such as opening a buy and sell in
the same pair. And it requires closing trades in the
order they were opened.
This is impossible to
guarantee if you are copying other traders.
Money: Typically the platform will accept your
country’s currency to begin trading. They may take
PayPal, credit cards, bank wire, or other online
payment forms. Check to see if they show the
results of your trades in your currency or in US
Profile: Be sure to complete your profile. If you
have an opportunity to enter your risk tolerance
and goals, do so. It may help the platform tailor its
offerings to better match your trading goals. You
may be offered the choice to keep your profile
private or public. This is entirely up to you.
‘Social Trading for USA Residents’, SocialTradingGuru 5 Sept, 2016
Sharing your track record will attract friends and
others who want to mirror your trading. Public
profiles are selective in what is public. Check your
platform to be sure what information is shared.
At eToro, your trading information and statistics,
name, and nation are public. But the actual cash
invested and other personal information such as
your address are always private.
You can also choose virtual trading or live trading.
When you begin, you will likely want to practice on
the virtual trading site to get a feel for the platform
and to prove and perfect your trading strategies.
Virtual trading mimics the timing and results of live
trading exactly. But with virtual money, you don’t
feel the sting of the loss, and you can’t pocket your
Finding Your Way Around: Each social trading
platform has its own quirks and ways of executing
trades. Take time to investigate the site and learn
how it works. Watch the start-up videos until you
become familiar with all the options and benefits on
the site. Make sure you know how to enter and exit
a trade. Learn the stop loss settings and how to use
them. Some sites may have classes or courses you
can take. On eToro, and any site, trading involves
risk. And remember, past performance does not
guarantee future results.
Begin Slowly and Build: Many of the social trading
platforms are fun. They are attractive, easy to use,
and it’s simple to begin trading. It’s almost like a
game. You can chat with friends, follow others, and
have a good time. But, once you start live trading,
it’s real money: real profits and real losses. It’s great
to have a good time. But be sure to use ‘good time’
money at the beginning. Use the money you can
afford to lose.
One trader started with money he would otherwise
have spent on a new computer. Some decide to
trade with the money they would have used for a
holiday. Just don’t use the money you need to pay
bills. Then you can have fun. A loss won’t break the
bank, and a win can feel exhilarating.
Add to your account on a regular basis. Larger
amounts of money let you trade in different ways
and gives you more potential for significant gains.
As you build your account, your strategy may
adjust. You may choose to have speculative trading
money and hold long term investment money
in lower risk assets. Social trading platforms are
designed to allow you to do all of this.
Copy trading comes with its own kinds of strategies.
Here are some ways to get the most from your
copy trading account.
Check Out Skilled Traders: Take the time to find
out all you can about traders you are thinking of
following. You may want to virtually follow them for
a while and see their long term results. Remember
that their past performance does not represent
what they will accomplish in the future. Check out
their trading history. Are they invested in the kinds
of securities you want to trade? How often do they
trade? How much money have they lost? Knowing
that is as important as knowing how much money
they have earned.
Don’t automatically pick the highest earning trader.
He or she may be taking excessive risks and will
crash and burn. They may also have a number of
open trades that are at a loss. Those unrealised
losses won’t show up in their earnings.
You can see how many people they have following
them. That can be an indication of their success,
but not always. Sometimes it’s self-fulfilling. They
have a run of good trades, and people hop on.
16.2 Copy Trading Strategies
Others see the increase in the number of copiers
and jump on as well. This herd mentality may be
the downside of social trading.
Don’t follow blindly. A trader with a string of good
trades may not have a strategy built to handle
all markets movements. Even those with large
followings may take substantial losses. So be sure
to look at factors beyond a large following.
Strong trading platforms help you manage your
risk by assigning risk levels to traders. It’s most
useful if it reveals the risks of individual trades and
total trades put on. Match the trader’s risk score to
your trade tolerance. You may find greater security
in copying a trader with a 10-20% return rather
than risking trades with a trader who has recently
returned 50% or more.
Learn as You Go: Don’t just pick traders and
trust them. Instead, learn their strategies. Study
charts and fundamentals. Become the backup ‘fact
checker’ for the trades you are following. See if you
agree. Evaluate how the trades turned out and
see if you might have predicted better… or worse
if you’d done the trade on your own. If you find
they’ve put on a trade you’re not comfortable with,
eToro lets you drop out of that specific trade with
the click of a button.
Set Stop Losses for Copy Trading: Usually you can
see the drawdowns or losses the trader you are
copying has taken. If it is beyond your comfort zone,
this is probably not the trader for you to follow.
Even when you find a trader that keeps within the
safety zone you want, be sure to set a stop loss
order. If the asset value they are managing falls
below a specific percent or amount, the platform
will close the trades automatically. Some traders
may have a strategy that works great, but then fails
spectacularly in a certain market. Your stop loss
lets you bail out early in the fall.
Copying Current Trades: When you begin to copy
a trader, you may be asked if you want to copy their
current trades. Typically the answer should be no.
Those trades may have already made substantial
moves in a positive direction. They may fall back a
bit before the trader sells it and you’ll take a loss
while others profit. You might join the open trades
if most of the positions are new, neutral, or in the
red. Did the trader have a good set-up? Is it likely
these trades will rebound giving you even better
returns than the followers who started when the
trade was originally placed? If you can answer yes
to these questions, then copy the negative trades
in the portfolio of the trader you are starting to
Risky Money and Investment Money: All trades
carry risk, but day trading and leveraged trading
carries greater risk with a goal of a potentially
greater upside. Investing in indices, ETFs and blue
chip stocks without leverage reduces the risk of
loss of capital while still giving some upside. You
only want to day trade with leverage using money
you can afford to lose. As you add more money to
your account, consider having two ways of trading.
Firstly, the money you want to risk for possible
big gains, and secondly money for more secure
trades that you want to grow for retirement or
other long term goals. Then balance your copy
trading to include these kinds of traders. Or take
some money and invest in lower risk CopyFunds™
offered by the platform.
Limit the Number of Traders You Copy: eToro
lets you copy up to 100 traders. But experienced
copy traders choose three to seven traders to
follow, at least initially. They balance their risks
and assets between these traders. That way if
any one trader fails, they have not lost their entire
pot of money. Also, if you are only starting with a
small amount of money, don’t follow many traders.
You may not be placed in some trades if your
investment amount on that trade doesn’t meet
the minimum requirement. If you miss a trade, you
will also lose out on the trader’s diversification and
increase your risks of loss.
Choose Traders in Different Assets: Your asset
allocation may be best served by having money
divided between currency traders, stock traders,
commodity traders, those who heavily leverage,
and those who do not.
But it can be hard to find traders who focus on
one sector. Some invest over a vast range of
securities. Then you have the concern of overlap.
You may have two traders you follow and both are
buying USD/GBP or gold, for example. This cuts
back on your diversity. When seeking out traders
to copy, try to find ones that are not investing large
amounts in the same securities.
The wider your asset allocation, the greater your
risk protection. Leverage also plays a part in your
asset allocation and risk level. You might put a
percentage in with a high-risk-score trader, but
adjust your risk by choosing another trader with a
conservative style.
On the eToro platform, you can search for Popular
Investors to follow based on where they live, what
markets they invest in, how much they have gained,
and how long that track record is. You can further
refine the search to cover the percentage of
profitable trades, risk scores, drawdowns, average
trade sizes, the number of followers, and more.
High risk and high rewards don’t always go
together. At times you can find a low-risk trader
making great returns. It’s worth your time and
research to find traders with lower risk, higher
returns and a long track record. You may keep an
eye out for ‘rising stars’ you can add to your copy
trading. Remember that past performance is not a
promise or indication of future results.
Once you find the traders you want to copy, a simple
click of a button should let you start following them.
Choose the amount of money or the percentage
of your account you want to invest with them. The
portion of the money you allocate will be used in the
same percentage as the trader invests his or her
money. Often a trader will recommend a minimum
amount to invest with them. You need not invest
that, but you must make sure the amount you are
investing is large enough so that no one trade is
below the platform’s minimum amount for a trade.
When you enter the amount you want to copy on
the eToro platform, it will tell you the average size
of your trades.
Traders who are confident in their skills and have a
good track record may want to become a popular
investor, or a trader others follow. Check out your
trading platform to see the steps you need to take
to become the trader others copy.
You can start simply by reaching out to friends
and inviting them to trade with you. You can begin
being copied any time after you have a public
account. However, there are steps you can take to
grow your following. Here are nine tips.
1. Trade well. Develop a good track record.
2. Complete your profile. Add a picture. People
trust traders with pictures so they can see who
they are.
3. Keep a reasonable risk level. Make it within
bounds other wants to trade in. Some platforms
will not let others copy you if your risk is too
4. Get verified. Make sure you give your platform
16.3 Growing Your Inuence
all the information needed to be verified and
increase your credibility.
5. Increase personal money invested. The
more money you have in the trades, the more
credibility you gain with the trading platform.
(No one else knows how much money you are
investing.) Studies also show you can withstand
more volatility with leverage if you are trading
larger amounts. Some platforms require a larger
investment to become a higher level copy trader.
6. Comment in the chatroom or feed of the
platform. Make comments about your thoughts
on an asset in the news feed or chat area. You
will get exposure. If your predictions come to
pass, others will take note. Also, explaining the
rationale behind your trades helps novices know
and trust you. Answering questions helps others
perceive you as an expert.
7. Develop a track record. It takes time to become
a leader. You need to develop that track record
of trades so others can see, verify, and trust you.
8. Grow copied money. The more money you
have following you, the more the platform will
compensate you.
9. Trade well. It’s worth saying again. If you are a
successful trader, others will copy you.
Most trading platforms compensate traders who
have copiers. Traders can earn a rebate on the
spread, eventually moving up to entirely free
trades. Some platforms compensate traders based
on the amount of money that copies them, others
on the number of people copying them.
For example, eToro offers four levels of Popular
Investors, (their name for traders you can copy).
Cadets begin the journey as a Popular Investor
with as little as $1000 in personal funds, $500 in
minimum average equity, plus one copier. They
receive a spread rebate of 20%.
Rising Stars have at least $5k of their own
invested, plus 50 traders with a total up to
$5,000 average equity. They earn $500 a month
plus a 30% rebate on trade spreads.
Champions have a following of 250 or more and
$5k in both personal funds and $5k in average
equity. They earn $1000 a month plus a 50% on
Elite status has the potential for nearly unlimited
income with some making $7,000 to $10,000 or
more each month. Elites have over $300,000
in money following them. They receive 100%
rebate on their trade spreads plus $1000 a
month and a 2% management fee for the funds
invested with them (calculated annually and paid
Of course, all these fees are in addition to any
profits Popular Investors earn from their personal
trading. If you bring trading skills to a social trading
platform, consider the money making possibilities
of becoming a trader others follow.
There are many traders who have been investing
on their own for years and they have skills to share.
And there are professional traders who have been
managing the funds of clients. Both can find a place
on social trading platforms that welcome them and
help them grow their clientele.
Professional traders are particularly invited to
come and trade on social trading platforms. First,
16.4 Professional Traders
‘Popular Investor Program’, eToro
they can bring their clients and give them more
transparency. Clients can view each trade and
follow along or they can set-and-forget. Second,
professional traders have a chance to pick up
more clients or copy traders who want to follow
them. They have much greater exposure to the
thousands of other traders already on the platform
and looking for someone to follow.
The platform may have a dashboard specifically
for professional traders so they can track their
following, their income, and their trades. Some
platforms even let professionals set up their
own fund for others to follow. They can pick
their securities, choose the weights, and decide
how often they want to rebalance. They can also
back test performance data and choose active or
passively managed strategies.
If the platform has a chat or feed page, they can
interact with their followers quickly and effectively.
This way of gaining information about investor’s
experiences and feedback allows professional
traders make adjustments to improve their
trades, their funds, and user satisfaction. By
sharing investment rationale on the feed page,
professionals create trust and increase those
copying their trades.
And trading platforms can offer financial benefits.
First, the spread is an ultra-low trading fee. Second,
the compensation for the traders can be quite
attractive. Traders with a high amount of assets
under management (AUM) can earn a sizable
amount of profit sharing.
And there are perks to make life easier. The
platform handles all the ‘paperwork’. The platform
takes care of the client trades, fees, payouts,
trading history, etc. Traders get to focus on what
is the most enjoyable for them: making trades!
Social trading platforms offer a new choice in
trading. They help new traders get started under
the umbrella of skilled examples. And they let
highly professional traders make a rich income
sharing their years of experience with new, and
not-so-new traders.
Your capital is at risk. Cryptocurrencies can uctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is
not supervised by any EU regulatory framework. Past performance does not guarantee future results. This information is for educational purposes
and not investment advice.