You’ve probably heard of eToro – it’s one of the best-known trading platforms in Europe and has built a worldwide reputation in recent years. One of its most prominent features is the eToro copy trading service. We’re here to let you know if this feature is worth it, what you stand to gain, and offer guidance about the potential risks of copy trading.
eToro is a major trading platform with over 26m registered users globally. It’s one of the most trusted platforms for all types of trading, from Forex to crypto. Due to its prominence and relationship with top regulators like the UK’s FCA (Financial Conduct Authority), Australia ASIC and CySEC (Cyprus Securities and Exchange Commission), it’s built a reputation for offering a high-quality trading experience.
Another major part of eToro’s popularity is its copy trading feature.
What is Copy Trading?
The copy trading feature on eToro allows users to make trades based on the activities of more experienced traders. You can sign up for the portfolios of verified traders in many markets and make movements based on their behavior. It allows you to vet traders based on past performance, their interests (which may correspond with yours), and which markets they operate in.
How Does eToro Copy Trading Work?
This feature means that novice traders can make investments based on the experience and wisdom of seasoned veterans. This can substantially reduce the risk of losing money by making investments without a comprehensive education. This feature is considered a huge perk for users looking to make reliable returns without putting substantial time and effort into learning about market behavior. As always keep in mind that past performance is not a guarantee of future returns.
Another significant advantage of this system is that you can make solid investments while you’re building up your knowledge. In addition to the copy trading feature, eToro offers excellent educational resources for novices. This means that you can learn how to make good trades via the traditional route (reading and learning), as this learning is backed up by following the activity of senior traders.
You can also learn “on the job” when the traders you’re following make mistakes. You can analyze their behavior according to what you learn and realize why a particular movement lost money and why you might consider moving against the expert’s behavior next time. This allows users to develop their critical trading skills while (ideally) gaining a steady stream of profit by following the activities of safe, experienced traders.
Can You Make Money By Copy Trading?
Yes – the traders approved on the copy trading service tend to be successful experts. This means that you’re likely to make small but steady returns if you invest low amounts when using this service. It’s a good idea to invest a small sum and watch its behavior compared to investing large amounts when you don’t yet understand how markets work. Don’t forget that profit is not guaranteed, and your capital might be at risk.
The copy trading feature is arguably best used as a real-time meter for understanding how cautious investments pay dividends in the long run. By following the activities of successful traders, you’ll see how they might make losses but that these are offset by more consistent gains. It’s also a helpful guard against knee-jerk reactions – veteran traders typically won’t react strongly if they lose money. You’ll see why you should follow this pattern by using this feature.
Is eToro’s Copy Trading Profitable vs. Making Your Own Investments?
There’s no substitute for knowledge.
eToro copy trading can be profitable for many novice investors simply because newcomers don’t understand how to make profitable decisions. Thus, if you’re interested in learning how to trade, you’re probably best off using this feature with small sums of money to help you understand market behavior before you start making decisions based on your own knowledge and with more significant sums.
Experienced traders might tell you that you’re wasting your time copy trading, but that’s because they already understand the market. If you don’t fully understand how market forces work but are keen to start investing, copy trading is an excellent solution if you’re not investing significant sums into someone else’s activities. Consider it part of a learning curve as opposed to a long-term strategy.
Does Copy Trading Guarantee Profits?
No. No type of investment guarantees profits.
Whether you make decisions based on in-depth knowledge or follow the most experienced investor in the business, there’s always a chance things won’t go your way.
The sharpest investors in the world have lost significant sums backing the wrong enterprise. The consensus is that when you learn to manage risk, you’re headed in the right direction. This doesn’t guarantee a profit, but it guards against losses that could put you in trouble.
If you’re looking for guaranteed profits, then trading of any type isn’t the best idea. There’s always a risk when you put your money into an enterprise that you have no control over. Especially in the early stages, you should consider trading a sideline and only put manageable sums into your investments, whoever is guiding them.
How to Choose an Investor to Copy
Finding the best investor depends on:
- The market: a top Forex trader will behave differently from a successful crypto trader. It’s best to follow specialists.
- Your investing style: if you’re looking to make small, long-term gains, you’ll want a low-risk expert. If you prefer short-term gains with higher risk, seek out a professional who has a good track record in this area.
- Your goals: some investors provide educational materials alongside their trading behavior. If you’re looking for a mentor, consider the full range of their offering.
eToro copy trading is a great way to learn more about market behavior. It can also provide you with the guidance to make more successful investments than you might have accomplished using independent knowledge. However, these shouldn’t be considered separate.
Use your copy trading experience to make wise investments independently. Don’t follow instructions without question. Invest cautiously and don’t just discover the best traders – learn how they got to where they are.
|Risk Disclaimer: |
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.
77% 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. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Crypto assets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.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.