etoro

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

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

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.​

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

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

• eToro

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.

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:

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.

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.

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