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Social Trading

Social Trading 2016 Review

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Looking back to last year, I knew nothing about Social Trading and even though I’ve got a good understanding of investments and have dabbled in the stock market before, Trading in general and Social Trading were a completely new thing to me.

I’d read both amazing reports of how people had made money without having to do much at all as well as articles describing how it’s impossible to make any money at all from Social or Copy Trading due to the way the platforms are set up, so the only way to get an answer to this was to try it myself.

For those of you who have never heard of Social Trading or Copy Trading before, this is a relatively new phenomenon, where instead of investing in the stock market, currencies or commodities directly, you invest money in a trader and copy a relative percentage all of the trades that they make.

This means that you are effectively trusting in the knowledge of the trader and invest in their strategies rather than doing this yourself.

There are no fees to do this, apart from the small percentage of each trade that the platforms will take.

3 Things I Learned About Social Trading in 2016

Spend Time to Research your Traders

eToro Stocktrader

There are many different platforms out there, each with thousands of different traders for you to choose from, so how do you know which one to invest your money in?

Personally I opted for eToro as it’s a fairly easy system to understand for the beginner and has a simple to use interface.

I also received a $1000 bonus for signing up with these guys when I invested $2500.

Each trader on the eToro platform has a profile, which gives you different metrics about their performance, what they invest in, the amount of assets they are managing, the maximum they’ve lost in a single day, their trading history since they’ve been on the platform and most importantly, a risk level, which is a metric that eToro generates to determine the traders appetite for risk.

My advice is to set up a virtual account to start with, choose a number of traders to follow with virtual money for a few months and only when you find a trading profile and risk level that you are happy with should you jump in and invest in them.

If possible try to interact with the trader themselves to see how rational they are, after all they’re going to be in charge of your money.

Create a Balanced Portfolio

eToro Traders Portfolio

It’s easy to get tempted and stick all of your money on a trader who’s seen massive profits over the last month or even 3 months, however, BE CAREFUL.

I have found that traders who bring home incredible returns for a few months are the same guys who will blow up their account and bankrupt themselves. The reason for this is their attitude to risk.

They’ll often have a high leverage and will risk a large portion of their account on single trades, which can either make them a killing, or ruin their account.If you’re going to invest I would suggest that you split your money out across a minimum of 5 traders, who have varied profiles.

By this I mean are split across:

• Their risk level – In eToro I would invest in anyone with a risk level over 7

• What they invest in – Split between commodities, forex and stocks

• The size of assets they manage

• The maximum drawdown level

• Whether they are a short term day trader or more of a longer term investor

Avoid The Most Popular Profitable Traders

If you base your investment decision solely on the basis of who is making the most profit, then you’d be crazy.

However, a lot of people will do this and see traders who are showing wild profits of hundreds, if not thousands of percent of profit.

Most people will see this, their big, fat, greedy eyes will light up and without thinking about it much will invest their money.

What happens next?

You guessed it, sooner, rather than later the trader is going to take one too many risks and their account (and therefore your investment) will become worthless.It’s strange because often these guys will have a lot of copiers as well, so a lot of people will be affected when these accounts are blown up.

The key lesson here, is learning to manage your appetite to risk.

What Did I Achieve?

I feel that I’ve got a good understanding of how Social Trading works now, particularly on eToro and I managed to make a bit of money from this.

It was interesting researching into the various traders, trying to understand their strategies and it was always a bit of a thrill when I logged into my account to see how much money I was making or losing.

Low Light of the Year

I’d been following Mister G who writes a blog about Social Trading and seemed to have a good knowledge of what he was doing, was quite responsive and cared about steady, long term growth, which is what I was looking for.

For some reason as soon as I invested in January he seemed to go a little crazy and was taking bigger risks with his investments.

This meant that in Jan he lost 20% and Feb 15%.I can accept this but this was different to his risk profile and what irked me most is that for someone who was very responsive in the community previously, after he lost a lot of his own and other people’s money, he went pretty quiet and didn’t respond to questions around his investment strategy.

Luckily I only invested $350 in him and ended up losing about $60 of that.

How Much Time Did I spend?

The good thing about Social or Copy trading is that once you’ve done your research you don’t need to invest too much time into this.

Whilst it’s definitely good to keep an eye on the traders that you’ve selected, I wouldn’t recommend switching around too often, as if you’ve picked a good trader they will have a strategy that lasts a few months rather than trying to make a quick buck.

This means that you might need to suffer a bit of a loss in some cases before you can make a gain, so just be patient.It’s also a good idea to have a watch list and look for other traders who you could potentially invest in, in the future.

Overall you don’t need to sink a lot of time into this, which is a massive benefit.

How much Money Did I make?

Well, to be honest I’m not so sure about this at the moment.

I invested a total of $2500, from which I got a $1000 bonus.In my account at the moment I have a total of $3541 equity.

I’m not sure if I can withdraw the full amount so at a bare minimum I guess that I’ve made a whopping total of $40

Was it Worth The Effort?

Well, the good thing is that there is not too much effort that you need to put into this, however, there is a certain amount of risk that you are playing with.

Most of the traders that I invested in were fairly low risk, hence my reward being fairly low as well.

To be honest, apart from doing some of the research, and not having too risky a portfolio, this does feel a bit like gambling to me.

I don’t think there is a massive amount of skill involved at this level and you are kind of pinning a tail on a donkey, but it’s a bit of fun.​

My Social Trading Dream : Chapter 3 : eToro Bonuses

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Ok, so as you know from the previous chapter I’ve been watching a number of eToro traders over the past couple of months and have added them to my watchlist.

Up until now I’ve been using my Virtual Portfolio to invest and was just about breaking even overall. This isn’t too bad to be honest, because I’d invested $1000  of fake money in each of 20 different eToro traders, some of whom were a lot higher risk than I would usually invest in.

So, this month I finally took the plunge and decided to make my investment. eToro do a great offer of giving you a really large bonus on your deposit, which varies depending on the amount you invest.

If you invest:

  • $300 – $999 they will give you $100
  • $1,000 to $2,499 they give you $300
  • $2500 and over and they give you $1,000 bonus

This is given in eToro points. Basically the eToro points means that you can use this money to invest in other traders, however, you will not be able to withdraw it all until you have made a certain number of trades, over a certain value. Basically, with each trade you make, you chip off of the total.

I’m not 100% sure how long it will take for this to be knocked down, but I’m in this for the medium to long term so figured I will be ok.

Originally I only wanted to invest $200 in 5 to 10 investors, however, the more I looked at this offer the more I was tempted by the $1,000 bonus and in the end I was suckered in investing $2,5000, which meant immediately my account was credited with a total of $3,5000 to invest in eToro traders.

How Did I Choose Traders to Invest in?

Well, I explained most of the process I went through in my blog post http://www.mylifestyledream.com/best-eToro-traders I wrote on choosing the best eToro traders and featured in this video:

I used these same techniques and then simply sent messages out to a number of the traders on my shortlist to see how responsive they were and getting a feel for whether they thought it was a good time to invest…. Of course all of them said it was, because they get a commission if I start following them!!!

So, the burning question on all of your lips is “Who did I invest in?”

Which Traders did I Invest in?

I decided to invest an initial sum of $350 in each of the traders below, keeping my Stop Loss at 70% and for most of the traders I didn’t copy their open trades.

The reasons I chose each of these were:

  • Sameerah786 – Seems like a consistent performer and has a good overall knowledge
  • Dimitirios1 – I like his investment style of only jumping in when he sees an opportunity
  • AnnaSerafini – Solid performance in the pasty and comes with good recommendations
  • Doew85 – Hard to resist with the consistent returns he is making
  • NoasNoas – Has a lot of experience and a lot of followers
  • HugoOchoa – Has had a bad few months but am confident he will pick up and balance this out
  • Misterg23 – Has had a really bad start to the year, but seems to be very knowledgeable and is a social trading expert

This leaves me with about $1,050 left to invest, so I’m going to keep my eyes peeled for some more potential investors. Am also tempted to take a punt on the markets myself, especially as the stock market is so beaten, however, I want this to be an experiment in Social Trading rather than my own investments.

Last Month’s Goals

  • Make the initial investment – COMPLETE
  • Understand eToro points – COMPLETE

 Next Month’s Goals:

  • Find 3 more traders to invest in
  • Start to look into Zulutrade

Balance Sheet

+ $984 – Includes the eToro bonus

The Ultimate eToro Copy Trader Review Guide

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The best eToro traders can be found using a number of tricks and tips. Choosing a top eToro trader to copy can be a daunting prospect, but I’ll guide you through some of the common pitfalls to help you select a copy trader, who will hopefully start bringing you in a decent return on your cash.

In this article we’ll look at:

Quick Navigation
eToro Copy Trader Search Filter
10 Top Tips for Choosing the Best eToro Copy Traders
A Good eToro Trader Profile
A Bad eToro Trader Profile
My Strategy for Selecting the Best eToro Traders
My Shortlist of the Best eToro Traders
Choose the Best Traders on eToro to Match your Risk Profile
Summary Video

eToro Copy Trader Search Filter

There are thousands of users on the eToro site, who range from amateurs with a bit of spare cash, to people wanting to make a quick buck and all the way up to seasoned day traders, who are trading thousands and thousands of dollars each day.

If you’re new to trading in general then trying to make sense of this and understand who to invest your hard earned cash in can be a little off-putting, but don’t worry there are some useful indicators that we can use to improve our chances of picking the right traders.

Before we start I want to be clear that I’m not a trader myself, but have done a lot of research and have a good enough understanding of the platform to give you some sound advice!

OK, so if you click on the ‘People’ link you’ll be taken to a page which displays a list of traders:

best eToro traders Search Screen

Screenshot from eToro traders listing

eToro has pre-filtered this list into the following categories of traders:

  • Top Investors
  • Trending
  • Most Copied
  • Lower Risk Score
  • Medium Risk Score

We’re going to ignore these for now, and instead create our own categories, using the ‘Advanced Search’ link at the top of the page, which gives you a wide range of criteria to help you select the top eToro traders:

Time Period

Use this to set the time from which you want to compare results for the different copy traders. Usually I would set this at 12 months to get a good comparison and show steady results. Setting this too low can expose you to more risk for traders who may have had a couple of lucky trades and are showing massive returns

Status

You need to be ‘verified’ to make trades on eToro, and ‘Popular Investor’ is a scheme that allows you to earn money when people start copying you. I would recommend checking both of these boxes

Name and Picture

I would always make sure any eToro trader I am about to copy has a profile pic, as it gives a little more credibility to their account

Copiers

Here you can filter by how many people are using the eToro copy trader function with this trader. I would be very careful with this metric. Just because a trader has a large number of people copying them, does not always mean that they are worth copying. The wisdom of the crowd is not always right. For example, a trader may have had a couple of good trades in the past month, so a lot of investors start copying them, then other people start seeing that they have a large number of copiers, so start copying as well, and this kind of snowballs up into really inflated numbers.

There have been many stories where a trader with thousands of copiers blew up their account and lost a lot of people a lot of money.

So the message is, I would not rely on this metric alone to make choose which eToro trader to copy, however, in combination with other filters it can be a useful gauge. I usually like to see at least 100 investors copy trading the profile i’m looking at so would set this to ‘Medium’

Copiers Change

To be honest I’ve never really used this filter, but it shows the % increase/decrease of the number of copiers over your selected period.

Copy Assets Under Management

Ranges from below £50k to over £300k. This shows how much of other people’s money the trader is managing and gives you an indication of the size of their portfolio. Usually when choosing an eToro trader to copy, you’d want a range of different sized porftolios across your traders. Diversification is key.

Return

Shows the percentage return across your selected period. What you choose here completely depends on your attitude to risk, as generally those traders showing higher % returns are likely to come with higher risks. I generally choose Medium.

Profitable Months

Shows the percentage of months that the trader has been in the green. I don’t find this too useful to be honest and would usually just refer to their statistics chart to gauge this myself.

Profitable Trades

Shows how many trades that a trader makes, come out profitable. Stay clear of this one as it really has no value, and is one of the most mis-leading filters in the list. The reason is that some traders will prefer to keep losing trades open rather than close them at a loss and affect their profitable trade ratio. This gives a false picture of their account and they will constantly be chasing this loss. In the long term this is untenable and you’ll end up paying for this loss as well if you’re not careful!

Risk Score

This is a variable figure that eToro assigns to a trader based on how volatile they consider the trader’s activities to be. This tends to fluctuate quite a lot and again, I would recommend having a balanced risk profile across your eToro traders.

Daily / Weekly Drawdown

These stats show the percentage that an account has gone down by on a given day / week.

This is a great indicator for you to check how risky a trader has been in the past. If they have a lot of weeks where they are showing high draw down percentages, then there’s a good chance this can happen to you as well, so I’d always steer clear of these guys. There are of course exceptions, usually that happen at the start of a traders history where they are risking more of their overall account to try to get quicker gains. If this is the case, I’d just recommend contacting the trader for more info as to why this happened.

Allocation

This shows how the eToro trader’s portfolio is split across:

  • Currencies
  • Commodities
  • Indices
  • Stocks
  • ETF’s (Exchange Traded Funds)
  • People (eToro copy trading)

Ideally, it’s best to have diversification across your set of traders that you copy.

Average Trade Size

Shows the average % size of the trader’s portfolio that they invest in trades. Also a useful metric to show how much of their account a trader is willing to gamble.

Exposure

Another useful metric which shows how much of their porfolio they are willing to expose. I would always keep this less than 50%.

Active Weeks

Just helps to give you an indication of whether they are a full time or part time trader

Trades

This can be useful to show whether the eToro trader has made massive gains just by a couple of trades or whether they do this regularly.

10 Top Tips for Choosing the Best eToro Copy Traders

  1. Make sure that they have been trading on eToro for a minimum of a year
  2. Check their feed and see how communicative they are. Do they show a good knowledge in the market. How do they react when they are performing badly?
  3. Check their performance graph for consistency. You should ideally be looking for a graph showing steady returns rather than big swings in the red or green
  4. If they are trading in Forex then try to find traders who specialise in only a couple of currency pairs
  5. Avoid if they have weekly or daily draw downs of over 15%
  6. Avoid if they have a 100% profitable trades – anything over 80% can be suspicious and may mean they are holding on to losing trades
  7. Avoid if they are making crazy % returns – don’t be greedy. If someone has been making a 10 – 20% gain over the past few years then this is a lot better than someone with really high gains, who is more likely to blow up their account
  8. Avoid if they have a high copy/manual ratio – I would usually avoid if they invest more than 20% in other people
  9. Avoid if they have a high number of open trades. Simply go to their portfolio and if they have lots and lots of trades that are listed (especially if they are red) then run, run, run.
  10. Read their bio and if you’re concerned about anything, drop them a message to see how they respond

A Good eToro Trader Profile

https://www.etoro.com/people/dimitrios1/

best eToro traders Good Profile

An example of the kind of trader profile that you should look for

If we have a look at the profile of Dimitrios, you can see that he has a pretty decent track record. What I like about his profile is that he doesn’t have a lot of fluctuations month on month and aims for steady long term growth.

You can’t see it on the screenshot, but he started off in 2012 with a loss of 50% but since then has turned things around and shows steady growth.

He has a pretty steady risk level of between 1 and 4, and his draw downs are 10% daily and 14% monthly, which is perfectly acceptable

He doesn’t have a great deal of copiers (only 271 at the time of writing), but is managing between 100 and 300k of assets. I like the fact that he has a split between indices, commodities and stocks, and if I click on his portfolio it shows he has no open trades.

This guy only does about 5 trades a week on average, and from what I can tell he only dips into the market when conditions are right and he sees an opportunity, which is an approach I like.

Overall, I don’t think you’d ever make tons of money from Dimitrios, however, if you’re in it for the long term and are after steady growth then he would be a good choice.

A Bad eToro Trader Profile

eToro's Trader 'Socialnvest' statistics

eToro's Trader 'Socialnvest' statistics

This trader however, on the face of things looks like he is doing amazingly well this month with a return of 668% and 87.72% profitable weeks, which sounds amazing.

However, by taking a quick look at his profile you’ll see that in the past 5 years he’s lost everything in his account on a number of different occasions. Steer well clear of this guy, who will remain anonymous!!

My Strategy for Selecting the Best eToro Traders

Along with the top tips that I mentioned above the main strategy that I have used is diversification. If you want to minimise your risk then you really need to diversify your portfolio across a range of things:

The criteria that I used for my portfolio was that I wanted:

  • Between 5 – 10 traders to copy
  • A split over long term and short term traders
  • A good balance between stocks, currencies and commodities
  • A range of risk levels between 3 – 7
  • Range of trader type (both long and short term)

The good thing is that you can use etoro’s virtual money and start to copy traders in your virtual portfolio.

My approach was simple, I shortlisted 40 different traders, added them to my watch list to review their performance for a week, then whittled the list down to 20 and invested $1000 each of my etoro virtual money.

I spent the last month reviewing their stats and have finally whittled this down to a shortlist of 10 who I am going to invest in.

My Shortlist of the Best eToro Traders

Annaserafini

Fairly consistent performer, who doesnt open too many trades at once or keep trades open when they are losing

Length of time on  eToro

1.5 years

eToro Risk  Level

​

3

Assets Under Management

​

£300k +

Number of Copiers

​

1140

Trades Per Week

​

3.37

Average Holding Time

​

3.5 weeks

Maximum Weekly Drawdown

​

10.28%

Past Annual Performances

​

69% |70%

Portfolio Split

​

Currencies

Visit Annaserafinis profile

Running Chris

Trading for 8 years, but only 1 on eToro. Does trading in his spare time. He would be my riskier trader to copy.

Length of time on  eToro

1 year

eToro Risk  Level

​

3

Assets Under Management

​

£300k +

Number of Copiers

​

1589

Trades Per Week

​

10

Average Holding Time

​

3.5 weeks

Maximum Weekly Drawdown

​

72.5%

Past Annual Performances

​

309 %

Portfolio Split

​

Indices, Currencies

Visit Running Chris profile

NoasNoas

Abnormally high returns in first year, but seems like a professional full time trader who is responsive and gets a lot of attention.

Length of time on  eToro

2 years

eToro Risk  Level

​

4

Assets Under Management

​

£300k +

Number of Copiers

​

3683

Trades Per Week

​

2.39

Average Holding Time

​

6 weeks

Maximum Weekly Drawdown

​

47 %

Past Annual Performances

​

597% | 37%

Portfolio Split

​

Currencies

Visit Noas Noas profile

Nortrading

Not on the platform for long. Trades currency pairs but seem to have a level head and not risking too much

Length of time on  eToro

1 year

eToro Risk  Level

​

4

Assets Under Management

​

£300k +

Number of Copiers

​

1669

Trades Per Week

​

14

Average Holding Time

​

2.5 weeks

Maximum Weekly Drawdown

​

18 %

Past Annual Performances

​

84 %

Portfolio Split

​

Indices

Visit Nortradings profile

Sameerah786

Works full time as a dentist, but seems to know what she is doing and has good track record over the past few years

Length of time on  eToro

3 years

eToro Risk  Level

​

4

Assets Under Management

​

£100 - 300k

Number of Copiers

​

627

Trades Per Week

​

1.58

Average Holding Time

​

1.5 weeks

Maximum Weekly Drawdown

​

33 %

Past Annual Performances

​

414% | 450 % | 38 %

Portfolio Split

​

Currency

Visit Sameerah786 profile

Doew85

Very rarely makes a loss but is making huge gains. Definitely one to watch, although returns seem too high

Length of time on  eToro

1.5 years

eToro Risk  Level

​

1

Assets Under Management

​

£100 - 300k

Number of Copiers

​

447

Trades Per Week

​

3.57

Average Holding Time

​

11 hours

Maximum Weekly Drawdown

​

13 %

Past Annual Performances

​

205% | 4822

Portfolio Split

​

Commodity

Visit Doew85 profile

Hugoochoa

Solid past performance, low draw downs and solely invests in stocks. Based in Mexico but doesn’t respond to English is the only drawback

Length of time on  eToro

3 years

eToro Risk  Level

​

5

Assets Under Management

​

< 50k

Number of Copiers

​

83

Trades Per Week

​

2.23

Average Holding Time

​

2.5 weeks

Maximum Weekly Drawdown

​

8 %

Past Annual Performances

​

32% | 20% |26%

Portfolio Split

​

Stock

Visit Hugoochoa profile

Choose the Best Traders on eToro to Match your Risk Profile

So, we’ve looked at how to use the search filters and some top tips to find an eToro trader to copy, we’ve reviewed a couple of copy trader profiles and I’ve given you my list of eToros best traders to copy.

All that’s left for you to do now is to jump in and make a start as well. The final thing that I want to point out however, is that the above article is really just my advice based on the experiences I’ve had so far, so you should use this information to help you choose the best traders to copy based on your own risk profile.

Only risk what you can afford to lose, and if you’re more risk averse, choose traders with smaller returns, lower risk levels and therefore a bigger security for you.

Whatever you do, I would recommend as a first step you create a free account with eToro as it will cost you nothing to set up and start playing around with the system.

OK, Happy Trading, and if you feel like joining the ever growing Social Trading community then click on the banner below (and i’ll get a small referral fee as well, wooohooo!)

Summary Video

In case you’re too lazy to read all of the above, I’ve made a video that takes you step by step through what we’ve discussed in this article:

My Social Trading Dream : Chapter 2 : Shortlisting eToro Traders

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Well, it has been one of the worst starts to a year in trading history with stocks plummeting to levels from 4 years ago, so a lot of the traders in eToro took big hits this month, particularly those who hold a high percentage of their portfolio in stocks.

However, every cloud has a silver lining, and this proved to be a useful time to see how traders reacted to these losses and how much this impacted their accounts. This helped me to remove a couple of traders from my shortlist who made big losses, and gave me more confidence in some traders who (even though most of their portfolio was made up of stocks), only made minor losses.

Of course, when everything goes down, this also presents another buying opportunity, so I am looking to invest in the next month.

I’ve got my account verified on eToro and am torn between investing $1000, which will give me a $300 eToro bonus, or if I invest $2500, then I will get a bonus of $1000. The only thing is that these bonuses are paid in the way of eToro points, which can only be withdrawn after you have made a certain amount of trades. I’m not 100% sure of how this works, but I think the amount you can withdraw gradually increases over time.

eToro Trader Shortlist

eToro Best Traders Shortlist
My Shortlist of the best traders to copy on eToro

Finding the right eToro trader to invest in can be a bit daunting at first, especially for the newbie. There are thousands of traders to choose from, some with incredible percentage gains, but you really need to be careful and spend a bit of time interrogating their statistics.

eToro gives you a great search filter which helps you to choose who to invest in and using a few simple filters you can start to find traders who match your risk profile.

TOP TIP : Some key things you should look at:

  • History of the trader, did they make any huge losses during a single month
  • How long have they been trading for… the longer the better
  • What is their risk level.
  • What do they invest in.. commodities, stocks, forex
  • How many open trades do they have. Often if they have lots of trades open, this may mean they are chasing the loss, hoping it will come back one day, rather than taking the loss. This is bad, because you will then take on these bad investments if you invest in them.

Remember it’s good to have a balanced portfolio of at least 5 traders, investing at different risk levels and across different markets in case something goes wrong with one of them.

You can have a look at my eToro Trader Reviews here and look at some of the criteria I used to select them.

All I need to do now is take the plunge and make an investment!

LAST MONTH’S TASKS

  • Choose 10 traders to invest in – COMPLETE

NEXT MONTH’S GOALS

  • Make the initial investment
  • Undestand etoro points

TOOLS AND SITES USED

My Social Trading Dream : Chapter 1 : A Look at eToro

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My second dream of of making money online was based on the concept of Social Trading and it has been an interesting first month as well.

There are plenty of social trading platforms out there like Zulu Trade, Ayondo and Signal Trader, but I wanted to start by looking at the most popular and probably the most accessible platfrom, eToro.

Again, there is loads to learn and I have had to stop myself from jumping  in and investing  my money, especially when I have seen  the potential returns that some traders were making. However, I’m glad that I have  actually taken a much more measured approach.

My original plan this month was to understand how the platform worked and start to look at the profiles of some of the traders on the network. I wanted to shortlist 20 traders, who I would then observe for this month to look at:

  • Their monthly earnings
  • Their risk profile
  • How responsive they were to comments on their trading profile

There are  thousands of potential traders out there so choosing who to  follow and  potentially invest your money  in can be a long  process, but you definitely want to weed out traders who don’t match the profile you’re looking  for.

eToro Chosing A Trader
How to Choose an eToro Trader to invest in

My approach was fairly simple, where I just looked at the top 40 popular investors and went through one by one looking at things like:

  • Risk level
  • How long they had been on the platform
  • Percentage profits over the previous years
  • Activity on their social stream
  • What they wrote about  in their profile

After a while you get a general feel from what the traders are like so I managed to whittle  this list down  to 20 traders who I wanted to ‘follow’. Then in my virtual portfolio I invested $1000 in each of the traders, and since then I’ve just been sitting back and watching their activity, although unfortunately, I didn’t get to spend as much time as I wanted on this activity.

Overall, things were moving in the  right direction, however, thanks  to one  trader ‘SociaInvest’ I learned a valuable lesson, which was that the traders who  are making the crazy percentage profits and  have high risk  profiles, have a high risk profile for a good reason:

eToro's Trader 'Socialnvest' statistics
eToro’s Trader ‘Socialnvest’ statistics

This guy Sebastian for example, had been making profits of over 100% in some months, which is an incredible return over the past few months and  had accumulated over 2000 people copying him. My initial feeling was not to put this guy on my list, as he wasn’t very responsive in the community and had a high risk level, however, most of the  other traders I chose had a risk level of 7 or below, so I thought I’d take a punt on him.

eToro Bad Day
A bad day’s eToro trading

All was going well,  until  one day when  I checked my account I noticed there was a $500 dollar loss. I couldn’t quite understand what had happened then I saw that this ‘Socialvest’ had managed to blow over 50% of the value of his account in  one day. Wowsers! Luckily for me this was only 50% of $1000 dollars of fake money, and  my virtual portfolio was spread ovoer 20 traders, so the hit  wasn’t too bad, but a lot of people lost huge amounts of money. This trader was managing over £300k of other peoples money so there were a lot of angry people commenting on his profile this month! But to be honest, more than anything this was a great lesson in knowing the risks involved and how steady low risk growth is a lot better than going for quick win high profits.

eToro Month1 Portfolio
eToro Month1 Portfolio

Summary

Whilst doing my research there has been a lot of bad press about Social Trading and I think this is an area where you need to be  very careful and not try to grab the big rewards. However, I still think this is something worth pursuing so am going to continue to look into this and will extend my research period by a month so I can invest in the New Year.

Next Month’s Goals

  • Choose 10 traders to invest in
  • Write a detailed article on how to select traders

Social Trading : A Beginner’s Guide

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In this guide we explain some of the key concepts of both Social Trading and Copy Trading and take a look at the top Social Trading Platforms.

Until recently getting involved in any kind of trading from the stock market to trading currencies, or dealing in commodities, was a fairly daunting prospect, with many barriers to entry for the beginner. However, in the past 5 years a number of Social Trading platforms have sprung up, which have made it considerably easier for the newbie to get involved in this kind of investment.

Quick Navigation
What is Social Trading?
What is Copy Trading?
How Does Social Trading Work?
What Are the Risks of Social Trading?
Social Trading Platforms?
Summary
References

What is Social Trading?

Social trading is based on one major concept, which is transparency. Previously investors could only get tips from close knit communities and access to trading history of individual traders was extremely difficult to get hold of. Now, that world has gone forever and the new approach is of ‘sharing’ is ‘caring’.

Wikipedia describes social trading as “the process through which online financial investors rely on user generated financial content gathered from various Web 2.0 applications as the major information source for making financial trading decisions.” –

Basically, the spread of financial information through the social trading platforms allows investors to gain quick access to information that they would previously have found difficult to reach. They then base their investment decisions on this knowledge shared by other investors. They key to success with this is finding the right people who you will trust and user their information for your investments.

The good news is that finding the Top Traders or ‘Gurus’ is made a lot easier by the various Social Trading platforms, who give anyone with an account full access to all of the trades that individual traders are making within that platform.

Each trader has a full profile which shows things such as how profitable their trades are, their risk level, what type of trades they are making (Forex, stocks, indices, commodities), how long they have been trading, and a whole bunch of criteria that can help you to select the traders that you are interested in.

This means that if you like the trading strategy that someone is applying then you can start to follow them, which will give you the ability to interact with them either via instant messages or their Facebookesque wall.

The basic rules are finding someone in the community who is responsive, has a good track record and matches your type of investment strategy that you are looking for.

Social trading is all about the free flowing of information and the ability to learn from other traders knowledgebase

What is Copy Trading?

The power of modern technology has given us one more gem to help with our investments…. copy trading.

Most of the social trading platforms now offer this feature, which allows you to copy all of the same trades that another trader is carrying out on the platform, and takes away a lot of the pain and effort of choosing the right trades to make.

If you have done your research and have found a particularly exciting trader that you like the look of, you can simply click a ‘Copy Trader’ button and allocate an amount that you would like to copy them with, and then every trade that they make will be copied proportionally out of your account.

For example, you decide to invest £100 in ‘Social Trader X’, who’s portfolio has a value of £100,000 then your investment is 1% of his portfolio size.

If ‘Social Trader X’ makes a trade worth £1000, then you will automatically make a trade of £10 as well in your account.

Everything is calculated automatically for you and you can choose to stop copying the trader at any point. Some platforms allow you to choose which of their trades you copy as well and you can usually decide at which point (Stop Loss) you stop copying them if they are losing or at which point you stop copying them if they are making big profits (Take Profit).

This means that the process of selecting a trader becomes even more important as you are not analysing the information that they are giving as much as you are analysing their performance. It’s a bit like selecting a fantasy football team, which are then going to manage your money for you. Actually, the thought of Wayne Rooney managing my money scares me quite significantly!!!

How Does Social Trading Work?

WHAT’S IN IT FOR THE SOCIAL TRADING PLATFORMS?

The platforms take a small commission on every trade that is made on the platform, so whether a trader is successful or not is not important to them. All they care about is getting as many users onto the platform, who are trading as much as possible, which is why you’ll see a vast number of introductory offers seducing you to join their platform.

WHAT’S IN IT FOR THE PROFESSIONAL TRADERS?

As with any social network, everyone wants their voice to be heard and their opinion to be valued, so I’m sure a lot of traders will use these platforms as a form of social approval.

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However, traders like one thing more than social approval…. money!!! Most of the platforms offer some kind of monetary incentive, which get paid to them after they have a certain number of copiers or followers and can add up to a nice supplementary income.

WHAT’S IN IT FOR THE AMATEUR TRADERS?

Entering into the trading arena is fraught with risk and pitfalls, however, if you go about it the right way then social trading can be a way not only to make good returns on investment, but also to receive free training from seasoned professionals in a potentially lucrative market.

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Using a social trading platform can potentially save you on hours of research, by tapping into the wisdom of the community. You’ll also find that trading fees tend to be a lot cheaper compared with traditional brokers and a lot of the most recent interfaces have been designed with the amateur trader in mind.

What Are the Risks of Social Trading?

Whilst on paper, this looks like a failsafe way to make money online, I can’t emphasise how much you really need to do your research before you make any investment. The old adage of ‘Don’t put all of your eggs in one basket’ is more relevant with social trading than anywhere. Since I’ve been looking into this over the past months, I’ve seen a number of Top Traders, who were making phenomenal returns completely wipe out all of their profits in a couple of days.

Yes, you really, really, really need to be careful. Remember, traders are human beings, sometimes they get up in the morning, like you and I, and are going to have a bad day. They might be sick, hungover, be suffering personal issues, who knows. The bottom line is that all of this can have an impact on your treasured savings, so you need to make sure that you balance your account across a good number of traders (I would suggest a minimum of 5 to spread your risk)

TOP TIP : Remember, if an investor is making incredible profits, then they are also likely to have a great number of people copying them. However, don’t always be fooled by this. This could just mean that the trader got particularly lucky on a couple of trades, which made them the big profit. This usually means that they are a very high risk trader and at some point will blow their account up and lose all of your hard earned profit. If it looks too good to be true, then it usually is, so I’d advise looking for traders with lower profits and steady growth over a sustained period of time.

Social Trading Platforms?

OK, so I’m guessing you’ve had enough of me bleating on about this Social Trading malarkey again, and you want to have a look at what it’s all about.

Well, there are tons of social trading platforms out there at the moment and the number is growing bigger every day, but here are 5 that you can start off with. I’ve chosen these 5 platforms specifically because you can start off with a demo account, before you take the plunge and risk your own money:

Summary

Ok, to sum up we’ve learned that social trading is all about the free flow of information to help people make informed decisions about their investments through the power of the community.

It seems like a great way to expand your knowledge of the financial markets, get used to some of the terminology used and is potentially a good way to make some money online without investing too much time. The idea of copy trading seems quite appealing as well, especially for newbies, as you let the trader do most of the work, and focus your efforts on finding the right trader to copy.

My time so far looking into this has been both fun and educational. The next step for me is to start investing in this, which I intend to do in the next month.

References

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