Social Trading on eToro
eToro was one of the companies which pioneered Forex social trading nearly 8 years ago. Although companies like ZuluTrade had a form of structure for their social trading activities, it was nothing like what eToro had to offer. eToro presented the first authentic way for beginner traders to copy trades from experienced traders so as to replicate the trade results on their accounts.
In this article, we will review eToro’s social trading platform and how it holds benefits for all categories of traders who participate in it.
The Structure of eToro’s Social Trading Platform
The concept of Forex social trading has actually been patterned after the trading rooms of institutional players in the market. In the trading rooms, traders operate in different categories, from the highly experienced veterans to the rookie traders. There is a well-established structure of hierarchy, with the experienced traders providing guidance and mentorship to the less experienced traders.
Since a typical Forex brokerage such as eToro cannot amass its entire group of traders under one roof, the social trading platform was created to enable those who are new to trading, get help from experienced traders by copying their trades. The experienced traders, also known as Investors, can get paid for their services and Followers will be able to pick who they want to follow and pay gladly for the copy trade services. This is what led to the birth of eToro’s social trading platform.
eToro’s social trading platform is an entirely web-based operation. In other words, the Forex trading platform on which social trading is carried out is web-based, accessible via the eToro website and eliminates the need to download setup files for a desktop platform version. This enables traders on eToro to access the social trading services on eToro from anywhere in the world there is access to a computer and internet connection.
Access to the social trading platform requires the creation of an online account, which can be expanded to allow for more detailed registration for the purpose of making deposits and withdrawing funds from the social trading account.
The eToro social trading platform has undergone a lot of transformation, in keeping with improvements in browser technology as well as the development of smartphones. Thus the new eToro platform for social trading is a lot different from what it was years ago. This is how the platform interface looks now.
This snapshot shows the asset listing on the eToro platform. As you can see, Bitcoin, which is probably the most popular cryptocurrency, as well as Ethereum, are now available for trading. The asset listing can be modified by adding or removing assets from the watch list.
There is also a navigation menu which allows the trader to make a selection of whether to trade with the provided demo account or trade real money on a live account. Funds can also be deposited or withdrawn using the navigation menu.
Participants on eToro’s Social Trading Platform
The following groups of people are participants on eToro’s social trading platform.
- a) The Followers: these are made up mostly of new traders and they constitute the bulk of traders you will see on the eToro social trading platform.
- b) The Investors: the Investors are experienced traders who feel that they have what it takes in terms of profitability in trading, and are ready to offer the opportunity to Followers to copy their trades for a fee.
There are procedures that Followers must follow in selecting an Investor. These are not really eToro’s procedures, but they are more of a set of guidelines that Followers can use to ensure that they get the best possible deal from the social trading service.
Selecting an Investor
You need to check out who is providing the service of an Investor that can be copied. To do this, you click on the “Add People” link located at the bottom of the interface. You have to scroll down the page to get there. When you click on it, you will be taken to the next page.
On this page, you will see the top Investors as well as several other options that will aid the selection of an Investor. Some of these features are as follows:
- a) Country location of the Investor: You can select Investors to follow based on their country of domicile.
- b) You can also select Investors based on the markets they trade. So it is possible to copy Investors who trade stocks, ETFs, commodities, currencies and indices. The scope of investments therefore extends beyond the Forex market.
- c) The % age profit gained within a set time frame. Here, the two metrics can be set one after the other. This is an important factor to consider as you would want to know how profitable the Investor you want to follow has been over a considerable period of time.
- d) Number of followers: How many followers are copying the trades of an Investor?
- e) Investor Score: Each investor has a dialog box which shows the % profitability within a 12-month period, as well as a risk score from 1 to 10, with lower scores showing lesser risk. New traders as well as traders with low capital should always aim to use Investors who have lower risk scores.
On this snapshot, we see the score profiles of 4 investors, A, B, C and D. Which of these Investors would be most appropriate for a beginner trader?
- Investor A has 3,500 followers, with a return of 253.69% in the last 6 months and 16.24% in the last 7 days. However, he has a risk score of 5, meaning he uses a fairly risky strategy.
- Investor B uses a fairly risky strategy, and has lower profitability scores than Investor A.
- Investor C has a return rate of 17.5% over the last 6 months, 10.4% over the last 7 days and is followed by 1,550 traders. He has a risk score of 3, meaning he uses a more conservative strategy than the previous 2 traders.
- Investor D has a risk score of 3, but far better performance metrics in terms of profitability, having made 45.95% over the last 6 months and nearly 20% in the last 7 days.
Good returns with as low risk as possible are the hallmarks of longevity and success in the Forex market. Which investor fits this profile? The choice is that of the individual traders. Ask 100 traders this question and you will get varying answers.