Copy Trading and Social Trading experiences. How does it work and what are the pitfalls?

Copy and Social Trading Experiences

Simply copy the best traders… in this article I will share with my readers my copy trading experiences. Copy trading is nothing different from blatantly copying other trader’s trades, but how does social trading work then?

First of all, you will need a copy trading account at eToro. I also had an account with ZuluTrade before, but this was rather disappointing. Trust me, for social trading, eToro is way better.

Open eToro demo account

You can easily find top traders by using the search feature. After that you can assign a budget with a single mouse click to use for copy trading and everything else works automatically.

On eToro all your trades are visible to everyone unless you turn this off from within your profile. Because of this, it’s insanely easy to find successful and profitable traders and simply copy their trades.

As trader you profit from the knowledge of the best traders and if you are a good trader yourself, others can copy you. You will receive a reward when others copy you, in the form of a commission.

Personally, I have been using the eToro trading platform for a little bit longer than a year and I am a huge fan of their platform. In this article I will explain you how social trading works and I share my own copy trading experiences.

Short tutorial video about copy trading:

Opening a demo account at eToro

Before you continue reading, I strongly suggest you open a eToro demo account. This is free and this way you can easily see what I am talking about and how it works.

Open eToro demo account

With the demo account you can practice with $100,000 virtual play money and all features work exactly the same as with a real account. You can also just copy trade with this virtual, fake money.

I always like to try a demo copy trading account first, to see how a trader is performing. This gives me a little bit more confidence than just looking at the statistics and if all goes well, I can just switch to real money instead.

Depositing money at eToro

If you make decent profit on your demo account, you obviously want to switch to real money. To do this, you have to deposit money on your eToro account.

The minimum deposit at eToro at the moment is only like $50, so you can get started with a fairly low amount of money.

Sadly, no local payment options are available like iDEAL, Bancontant or przelewy24. You can deposit money using on of the following payment methods:

– Bank wire transfer
– Credit / debit card
– Paypal
– Skrill
– Neteller

Sign up for a free Neteller E-Wallet… Super handy to use at online casino’s and brokers!

What can you all copy trade?

eToro offers a huge selection of instruments that can be traded. This is one of the things I really like about their platform. From my experience, there’s no copy trading platform as big as eToro. Here’s an overview of the available assets:

Crypto

Bitcoin, Ethereum, Ripple and more. There are quite some traders that made boat loads with these assets the last few months (including me). Unfortunately, the history doesn’t go back all the way to 2017, so be careful when you apply copy trading to a trader that opens and closes a lot of crypto trades.

Currency pairs / Forex

All major currency pairs on the forex market are available. Forex can be very volatile with sudden bursts. I like the fact some really good forex traders are active on eToro that you can just copy trade.

Stocks and Shares

eToro mostly allows you to trade CFDs only. This way you can profit in the case of both a rise and a fall in price (going short). Because of the leverage, you can open a large position with a relatively small investment amount.  With copy trading you can easily see whether the trader you want to copy invests a lot in stocks or not.

Commodities

Think of gold, zilver and crude oil. Gold is often being used as a hedge when USD and other currencies go down in price.

Indices and ETFs

These are index funds like the NASDAQ but also investment funds. You can invest in an entire sector or piggy back on the economical growth of an entire country. The charts on these instruments often go sideways and are more common to be in the portfolios of defensive investors.

Why you should try copy trading

If you really want to successfully trade or invest, you have to work hard for it. It costs quite some time and energy. Don’t you have this time and energy? Then copy trading is perfectly suited for you. If you simply copy a few professional traders that have way more experience than yourself, you take a lot less risk.

Copy trading doesn’t take away all the risks of trading but it’s less risky compared to trading on your own.

etoro-demo-account

Tips and tricks to find traders to copy

If you’ve read till here, you already opened a free demo account, so now you’re looking for people to copy. This is the hardest part of copy trading.

Of course it’s not super hard, but it just takes some time doing your research. Below you will find a short guide how to find the best traders.

Finding traders and investors is done by using a filter system.

etoro-review-2020-copy-trading

Finding people to copy on eToro

Don’t just follow ForexMaster91 from Kazachstan or TriplePipsUSA from Florida, use my guide, that’s what it’s there for.

Experience

The first thing I check is the trading experience of a trader. I follow absolutely nobody that is trading for less than a year on eToro. A good thing is that, the longer one is an eToro member, the more history you can check. You can see exactly how much monthly profit someone made.

Always copy people only when they have more positive than negative months. (Kinda obvious, but yeah)

etoro-copy-trading-trader-to-follow

Positive and negative months from a random eToro trader

Biggest loss

On eToro this is called Max. Drawdown and it shows the biggest loss in a certain time frame. In the example below, the biggest loss of the trader is -8.90% in a year.

etoro-review-copy-trading-max-drawdown

Max. Drawdown

That’s neat, because there’s also trader’s with a max. drawdown of 40% upwards. The higher the max. drawdown, the more risk the trader takes.

Holding Times

on eToro this is called the holding time and it shows how long a person keeps his positions or trades open. Ask yourself whether you want to lock your money away for a longer period or you want to make quicker trades over a smaller time frame. I prefer the latter.

copy-trading-trade-durations

Holding Time

This trader keeps his trades open quite long. I rather use copy trading on traders that hold their trades shorter than a month.

I make some exceptions for traders that are heavily in to stocks, these positions are always a bit longer.

Amount of Trades

I prefer to copy people that are quite active and 1 or 2 trades a week is the bare minimum for me.

copy-trading-trades-per-week

Amount of trades per week

In general it’s quite nice if the trader is active, but it’s even better to know your money is working for you when you follow that trader, rather than doing nothing.

Risk Score

This is the risk score and it shows how risky the trader is. eToro assigns a risk score to each trader. This is a combination of the used leverage, the markets in which he or she is active and how much he or she invests per trade.

copy-trading-risk-score

Risk Score

I prefer to copy people with a risk score of 4 and lower. Some times a 5 if the trader really has a good performance over the last couple months.

Market trends

Sometimes a market is trending for a while, this makes it easy to profit for people that hold on to a certain stock. Always remember this and take this in consideration whilst copy trading.

Copying or following?

With copy trading you copy somebody, but you can also just follow somebody. What you do then, is adding someone to your watch list.

This is a list of people that you might want to copy in the future. I mostly add people to my watch list whilst searching for profitable traders, so that I can find them back quite easily. You can also create lists of assets that you want to follow.

With copy trading, you use a part of your account balance to open the same trades as the person you copy.

The money just remains on your own account, so the person you’re following cannot run away with it.

Imagine a trader you follow, opens a trade with 10% of his total account balance, then the same trade is also opened in your account with the same percentage, but only from the money that you allocated to this trader.

Start Copy Trading

Copying someone is super easy. Once you’ve found someone, just click copy and enter the amount you want to use to copy the trades. You then see how much is being used on average per trade.

copy-trading-explained

Start copy trading

Setting Stop Losses

Under these settings you will see a notification saying: stop copying when copy value goes below… This stop loss means that when your balance goes under a certain amount (which you can decide yourself), you automatically stop copy trading.

Please note: Always switch off the Copy open transactions tick. You only want to copy new trades and not existing ones. This is because you most likely missed their ideal opening price and position.

Copy trading or trading on your own?

This is a difficult question. I prefer trading myself but it’s very tempting to just let others do the hard work. Luckily one can trade themselves as well at eToro. You can always buy stocks when you think they will go up in price.

Interesting read: eToro review 2020 update

If you are a good trader, others will start copying you and at one point you can become a popular investor, in which case you start getting rewards.

My personal copy trading experiences

This experiment is still going on, but until now my copy trading experiences are very positive. My profit is over 9% the last 6 months and that’s a lot more than I would receive on a savings account at my local bank.

New: Investing in CopyFunds

If you’re really lazy, but I mean really lazy, you can just invest in all top traders with a single mouse click. About a year ago eToro launched CopyFunds.

There are different kinds of CopyFunds available like TopTraders and GainersQTR.

etoro-review-copyfunds

Investing in CopyFunds

I haven’t really looked in to CopyFunds yet, but once I tested these, I’ll post the results here.

Questions about copy trading?

Hopefully you now know a bit more about copy trading. Now you can just try it out for yourself. Use the free practice account and once you start making some profit… who knows with real money.

Open eToro demo account

I am very interested in hearing your copy trading experiences and questions, by the way.

Don’t forget to share!

Tagged with:

This website is owned by GC Media Holdings Ltd. 306 Victoria House, Victoria, Mahe Island, Seychelles. Advertise / (media) buying enquiries