What if you could copy the stock, forex and crypto trades made by experienced traders instead of trying to do it yourself? Well that's exactly what Copy Trading is.
I've tried out pretty much every copy trading platform that I could and this is my top pick.
The Best Copy Trading Platform: eToro
In my opinion eToro is the best Copy Trading platform. Since it launched back in 2008, it has developed into a powerful copy trading tool with the best features and most accurate copying of trades. Here is why I like eToro over other platforms:
Why I like eToro
Realistic Trading Stats
One problem many users have with Copy Trading is their returns not matching the trader they are copying. This can be done for a number of reasons. Some platforms present stats about traders in very misleading ways. For example, a platform might only used closed trades to calculate the profit or loss or a trader. All a trader has to do is keep losing positions open to maintain the illusion of profits.
eToro doesn't do this. The profit (or loss) that eToro shows in percentage terms is based on both the open and closed positions. This gives you as a copier a much more accurate representation of how profitable a trader has been.
Huge Number of Traders
eToro has millions of members which means there are plenty of people you can copy. One problem I've found with some platforms is a lack of quality people to copy. When I've been testing out these apps, I've been forced into copying traders I wouldn't copy on a platform like eToro.
eToro Risk Scores
eToro introduced risk scores a few years ago. Traders get a risk score based on what they trade, the leverage they use and the amount of account capital they assign to each trade. Although it's not a perfect indicator, it's a great way to filter out some of the traders who are using risky strategies.
Longer Term Investing
Some copy trading apps only allow trading of forex or other riskier assets. On eToro, traders can invest in Stocks and ETFs – assets that could be considered less risky over the long term. It's possible to build a diversified portfolio of lower risk assets on eToro for longer term gains. I've also noticed that eToro has started highlighting investors who are focused on long term strategies. A move which I think is great!
Relatively Low Minimum Investment
To start copy trading on eToro you need $200 USD. This is much lower than some platforms that can require investments of thousands of dollars to get started. While $200 is still a lot of money for some people, it's still accessible to many investors. Having a smaller minimum investment means you can build a diversified portfolio that is copying multiple people.
Things to Watch out for on eToro
While eToro is a great platform, there are still some things you should watch out for before investing money.
Traders who don't know how to lose
One of my favourite books about trading is The Tao of Trading. It was written by a hugely successful trader. One thing I learnt is that its ok to have losing trades. The best traders have losing trades. They just know how to close them. One gripe I have with some traders on eToro is that they keep losing positions open for many months (even years!).
Before copying a trader, take a look to see if they have any open trades that haven't been closed for 6+ Months. This is a red flag of a trader who doesn't really have a strategy.
Crypto has been my number 1 performing investment. But it's still risky. A lot of people have lost money investing in crypto. While eToro could be a good place to copy trade crypto traders, you do need to be aware of the volatility and risk. I believe that copying a crypto trader is riskier than copying a stock trader.
Spread and other Fees
So eToro doesn't charge any fees to copy a trader. But you still might be charged fees depending on what assets a trader is trading and if they are using leverage. For example there are no fees to open a long stock trade. But if you open the trade with leverage there are overnight and weekend fees (this is basically interest as you are trading with margin). I've found that the best traders don't trade with leverage so this isn't a huge concern when copy trading. But it's still something to be mindful of.
eToro also charges a spread. This is the difference between the bid and ask prices. eToro spreads are competitive for stocks and forex, and could be more competitive for crypto.
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. 67% 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.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
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.