Choosing eToro Over Automated Trading Systems

Written by AtelierUK


When I first started trading on eToro, I had moved some of my funds from an external broker where I had been testing a series of automated trading systems (known as Expert Advisors) on the MetaTrader 4 platform. Automated trading systems seek to open and close trades when given markets conditions exist, often evaluated using various forms of pattern recognition or technical analysis (such as neural networks, time analysis, Elliott wave theory, scalping etc). Some of these systems work very well, but 99.9% cause significant losses very quickly. They are sold to the investor on the promise that they can generate huge returns, often based on some extravagantly specific back-testing data, with very little proven track record in real-time live trading accounts on a stable broker. There are exceptions to the rule of course, and there are, in fact, many automated and algorithmic systems in use across financial institutions globally. But they are not available to the general public. They are not for sale, and if they were, they would be incredibly expensive; cost-prohibitive for the average retail investor.


The major flaw in (nearly) all publicly available systems is that they cannot perform fundamental analysis alongside technical analysis. This means that they generally underperform in adverse market conditions, and even with solid money management techniques in place, provide a limited return for what is, ultimately, a high risk investment (my own analysis suggested around 20-30% per annum for a very small number of well-managed systems).


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For me, there was another discouraging factor. An automated trading system works most effectively when it is running on a client terminal that is hosted on a server with low latency between the trading terminal and broker, such that the system can react quickly to market movements and place order at optimum price levels. Whilst a server for hosting such an environment isn’t that costly (typically in the range of $30-$50 per month for a single system), when one considers the system may only generate 20-30% per annum average return, the automated system must generate $480 per annum in order to break even (12 x $40 = $480).


If the system were to achieve 20% growth, year on year, without any variation at all, this would still require an initial investment of at least $2,400 just to cover server expenses. Factor in the cost of actually purchasing a system (which usually start at a few hundred dollars in most cases), and you’re really looking at around a $5,000 to $10,000 investment on a system that you probably already know could be flawed in a number of ways.


As a proportion of my overall investment portfolio, putting such a large amount of money in to a single investment alone was far too much of a risk, even if it did generate healthy returns. So it was pleasing to read about CopyTrader, as, conceptually, there are many similarities between this interface and the standalone EA’s market.


Whilst I still maintain an active interest in automated trading systems, eToro’s CopyTrader system seems a far more efficient mechanism for capitalising on financial market fluctuations in an automated way than stand-alone automated systems. For starters, it’s far more accessible, allowing a potential investor to trial the platform and make an assessment of its profitability (in terms of Guru statistics) in real-time, with live data, without the need to actually invest any money. Naturally, performance is dependent on both the selection of the system (in this case, the trader, or Guru) and the performance of that system (or trader), but the principles are still the same, and it is for this reason that I chose to become, and continue to be, a part of the eToro community.


If you have followed a similar path to me in recent years, or know someone who has, I would be very interested to hear your thoughts and opinions, either on my trading feed, or by commenting below.


I wish you all every success with your trading.





About The Author:


I am a part-time trader from the United Kingdom with 4 years experience trading spreads, forex and equities across a range of different brokers, platforms and products. I have a preference towards intraday/swing trading and scalping using a combination of technical and fundamental analysis. More information on my trading style can be found here.


As an eToro Guru, I aim to provide a diversified and actively managed portfolio for new and existing investors on the eToro platform. If I can be of any assistance at all, please feel free to contact me via my trading feed.