eToro review – can you make a living with social trading?

Social trading is a relatively new concept that uses similar principles to social media – user generated recommendations etc… to help make investment decisions.

Here we take a close look at one of the world’s leading social trading platforms eToro – and ask if it is possible to make a living via social trading.

What is eToro?

etoro logo

eToro was founded in 2006 and now boasts over 6 million members worldwide who use the platform to manage their investments.

The social trading platform was the first first global market place for anyone to trade currencies, commodities, indices and CFD stocks online in an easy-to-use and transparent environment.

Using other social media networks as its template, eToro works by harnessing the collective knowledge of its users to influence investment decisions – working to benefit both new and established investors and delivering profit to its users.

The ‘user generated’ social angle of investing has been shown to improve returns on investments and is particularly useful for those new to trading, who can use eToro to copy the tactics and investment strategies of more experienced traders in real-time.

The success of eToro means it is now the biggest social investment network in the world.

How does it work?

eToro has a lot of different tools for new investors to use, with their CopyTrader™ system being perhaps the most popular.

This unique technology enables investors to copy the actions of other investors in real-time. All you need to do is identify successful investors using the eToro platform and click Copy to automatically make the same trades as them. You can also set a trading limit so you only copy the investments you can afford and always keep control of your funds.

With millions of investors signed up, it could be difficult to find the best ones to copy – which is why eToro have also introduced a People Discovery Tool. This acts as a search engine with lots of specific filters to help you drill down to find the most suitable investors for you to follow and copy.

To further help you with your investment decisions, eToro also features a live ‘Insights’ widget that is regularly updated throughout the day data from the top 1,000 investors using the platform – giving you an insight into the trading behaviour and sentiment of some of the most successful traders.

On top of all that, eToro is rich with market news, economic calendars and calculators to give new and inexperienced investors a wealth of information to help guide them through the complicated world of trading.

Another bonus of using eToro is their ‘Popular Investors’ program. This aims to reward traders based on how many other traders are copying them – so the more people copying your trades, the more commission you earn which can go all the way to $10,000 per month.

The big draw of using eToro is that people with little to no prior knowledge of financial markets can sign up and start trading successfully – and learn as they go. This bit is key, as you will have to go on a steep learning curve when you get started!

Our advice is to start slowly as you work your way around the system and become comfortable with what you are doing before committing large sums into investments. It’s also important to note that all investments carry a level of risk and you can lose money.

Getting started with eToro

First things first, just head over to www.etoro.com and create your account for free.

The next step is to deposit money into the platform to use for trading. The minimum you can deposit is $200, and the minimum you need to start copying another trader is $100 of that – so you can effectively start copying two people right away. Although we don’t recommend that just yet. For now, you want to familiarise yourself with the platform and get used to how it all works…

Here is a quick rundown of the different areas within the eToro platform:

Watchlist

Here you can keep all the people and markets you want to follow in one place, which can be organised into different lists e.g. ‘potential people to copy’, ‘potential stocks to invest in’ etc…

Portfolio

Your portfolio is where you will find real-time tracking of all your trading data – view your open trades, see live tickets, and monitor your overall investment performance.

News Feed

Like with your main feed on Facebook, the eToro News Feed will show all relevant updates from the traders you follow.

Markets

All the different markets that are available for you to trade in e.g. the stock market, currencies, commodities and indices.

Can you make a living with social trading?

It’s possible, but it probably won’t happen overnight.

The key is to build gradually, not over-committing and learning who to follow. With regards to the eToro platform here are a few tips to help you build…

Common mistakes to avoid

Perhaps the biggest mistake new investors make is to follow the same traders that everyone else is following. Remember that you are now an investor, and successful investors are rarely ever ‘sheep’ who just follow the crowd.

As with other social networks, people can become very popular in terms of ‘Likes’ and ‘Follows’ without necessarily providing any real value to the community. So don’t just jump on whatever popular bandwagon you might see, take your time to find successful traders to copy who will bring you more returns than losses.

Another common mistake to avoid is over-trading. The nature of social trading networks lends itself to constant activity – with real-time updates and notifications etc… but remember a lot of investments can take time to bear fruit. Logging in and checking things every 20 minutes and making new trades on a whim is not the way to build a strong portfolio.

To help you be disciplined, it is important to trust that you are copying the right traders…

How to pick the best eToro traders to copy

We’ve narrowed down a few characteristics you should be looking for before you decide to copy a trader on eToro:

Make sure they have been on eToro for a long time, and their trading history demonstrates consistent – but realistic – returns. Don’t be fooled by traders who have had big returns from a few lucky trades, as luck tends to have a habit of running out!

Does their profile feed show a professional knowledge and experience in market trading?

Do they have ridiculous returns? Even if they have been trading for a long time, it still may be a red flag if they have huge returns. It may seem odd to avoid traders who have brilliant returns – but such huge trading successes can only be down to either luck or reckless investments. Huge returns are not sustainable, so look for consistent returns.

Are they communicative? The best traders to follow are those that can also help you learn about trading, and are willing to explain why they might make certain trades. Rather than just blindly copying someone, you ideally want a trader who will improve your overall knowledge as well as increase your returns.