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Below content does not apply to US users
Let me guess. You are looking for information about eToro because:
- You have already tried eToro but it didn’t work out as hoped and you can’t figure out why
- You read our eToro review, you are eager to start, but you also realize you need to deepen the matter a little more
- The question “how does eToro work” still leaves you some doubts
- You want a tutorial that will guide you step by step to discover how eToro works
Well, you ended up in the right place.
(US resident? Check out our post and tutorial for the brand new eToro USA)
With this eToro tutorial guide you are about to discover step by step how to use eToro effectively: from the platform characteristics, to the best eToro strategies to research and use the Popular Investors, to the people-based portfolio management, this eToro training guide is a mine of useful information, simple and easy to use.
A real eToro for beginners guide for a real eToro training.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
With the InvestinGoal journey you started from the first introductory Investing for Dummies guide, then you discovered what is Social Trading, and you also passed through the guide which revealed the market that can let the magic happen, the Forex Market. Basically, you have received everything you need to finally start investing in first person with eToro.
So, let’s begin. First, let’s discover here what is eToro and its main characteristics.
Here are our 12 basic lessons to really understand how eToro works.
Table of Content
eToro Tutorial – Complete eToro Guide for Beginners
In this course, however, we will talk also about another market, or better to say of another trading tool, the CFD or Contract For Difference. The technology of this company is based on CFDs, and it’s thanks to them that eToro has been able to offer its investors the possibility to trade not only currencies, as for most other companies, but also a lot more.
Today this broker offers an advanced Social Trading service (especially after the launch of the eToro CopyPortfolios) in currencies, but also commodities, indices, single shares of listed companies, and recently also Bitcoin.
Opening an account means creating a personal trading account with the eToro (Europe) Ltd company and joining a community of traders and investors belonging to the same broker.
EToro was founded in 2007 (have a look at the wikipedia page) as an alternative broker to the usual stereotypes of the Forex market, with the goal of making retail trading and speculative investment simple activities, for everyone.
This was, and still is, the aim of its founder and CEO Yoni Assia.
The first strategy aimed at achieving this goal was to create alternative trading platforms, such as the controversial Forex Marathon or the Globe Trader. But it’s in 2010 that this company took the road that led it to be a true industry leader.
Soon, eToro also added a copy trading feature called precisely Copy Trader, with which one could replicate automatically and proportionately the operations made by those.
Today this company has made the last step in its evolution, becoming a more compact and integrated platform, thereby losing some denominations and simply remaining eToro (here you can find the full story in our eToro review and opinion)
How eToro works and How to use eToro Social Trading
eToro has taken an opposite direction relative to the other main industry reality, ZuluTrade. If the latter was born as a Copy Trading company and then it integrated the Social functionality, eToro was born instead as pure Social Trading company (perhaps they even invented it), and then it added Copy Trading to improve its offer (have a look at our list of the best copy trading platforms).
eToro is the best choice for those interested in Social Trading as an opportunity to access information and knowledge of those more experienced traders and investors, in order to accelerate the learning curve, being also able to automatically replicate their operations.
To summarize, eToro is:
- free information and strategies
- knowledge and assistance from the community
- creation of a truly people-based portfolio
Why this eToro Course for Beginners
Even though eToro, and Social Trading in general, have actually decreased the barriers dividing most part of beginners from trading and investment due to lack of knowledge and experience, we must not make the mistake of thinking that this is enough to be profitable.
Opening an account with this broker is still a financial investment to all effects. Also, we are always talking about a derivatives market, where it is necessary, or rather essential, to know precisely what you’re doing, or you run the risk of losing your money quickly.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
The eToro platform, the way in which the user can manage his money, the transactions, the financial leverage and margins, are perhaps unique in their kind. Anyone who has had only trading experience with the famous MT4 will be a little confused a first contact with eToro.
In this course we will explain in simple terms the particular style eToro uses to view and manage its Copy and Social Trading service, explaining the differences from the classical methods and the peculiarities.
The double face of eToro Social Trading
In Social Trading everything is open to everyone, everyone can have their say, everyone can share their thoughts and opinions on what happened and their theories about what will happen.
There’s always someone who has an idea, a suggestion, a thought on everything, and it’s definitely great to be able to access all these opinions. But the real important thing, the only crucial to avoid to risk more than necessary is being able to have your own opinion based on clear data, statistics and performance.
You may not be able to determine whether the Dow Jones is really about to make a reversal, but at least you will have to be able to determine whether those who think and say these things really knows their stuff.
In other words, you have to be able to interpret the data and the performance of those that on the Dow Jones (or on any other instrument, currency, stock, commodities) have really invested and made trading, to see if they actually knows their stuff , and they are worthy of your trust.
Not always comments or votes of other people are sufficient to determine if one is worthy or not, because those who vote or comment may be little or no expert on the subject, nevertheless their comments might influence you or even mislead you, making you take bad choices.
When it comes to money, the key thing is to have a solid ground to make informed choices and avoid unnecessary or excessive risks. Social Trading and the community can help enormously in this process, but in the end it will be always you and only to make that decision and bear all the risks.
Better to do it with the right foundation. This eToro course is the right place to start.
eToro Demo account for practicing
Now, let’s starts from the first lesson on how to open and especially manage your practice account, because yes, with eToro you can even start demo.
We have created a whole separated tutorial for the opening and best practices.
You just need to go to that post, open you virtual account, set it up in a couple of clicks, and then come back here.
Go now and read our eToro demo account guide.
See you here in a couple of minutes.
Characteristics and Functioning of the eToro CFDs
In the post CFD for dummies we treated in simple terms what are CFDs and how they work.
In this lesson, instead, we will focus on the characteristics of the eToro CFD, with which you can trade with Social Trading on the famous and eponymous platform.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
The characteristics of eToro CFD
You can find the terms and conditions of all the CFDs treated by eToro at this link.
Here is an excerpt of the tables.
– EToro CFD on Shares
CFDs on shares have as underlying asset the shares of publicly listed companies. Currently eToro allows to negotiate the main market stocks of:
- New York: NYSE and NASDAQ
The characteristics of the CFD on shares are very similar to those of the other underlyings, with some extra particularities.
eToro’s profits comes from the enlargement of the bid-ask spread. As you can see, for each underlying stock, the spread applied by eToro varies. The reason for these differences can be identified in:
- different share price;
Let’s take a practical example to understand what weight to give to the individual values, considering Apple, which is the first that appears in the table above.
Opening a CFD position on APPLE, with the application of a spread of 8 pips, you have to imagine a situation like this.
On the NASDAQ market, where the underlying shares are traded, Apple has a book like this:
Spread 1 pip
So, in practice, on the NASDAQ market, to buy Apple shares you are required a disbursement of $ 126.51 (ask price), and in case you wanted to sell it instead you will receive $ 126.50 (bid price), plus the commissions charged by brokers.
Working instead with the eToro CFDs you will have a situation like this:
Spread 8 pips
As you can see from the example, the distance between bid and ask is increased. This simple widening of the spread allows eToro to gain from your trading, and you to be in the market with the benefits listed above.
EToro is not a Market Maker kind of broker, because it does not create a virtual marketplace, but it’s not even an ECN, because customer orders are not sent directly to the market (read here to learn about the different types of brokers).
It is a hybrid of both conditions. Essentially, eToro has a brokerage policy for which it covers your CFD transactions with real positions on the real market, through markup operations.
What is meant by markup?
In practice, as you saw, eToro applies a spread higher than the actual underlying market, which allows it to profit from its brokerage business.
Therefore, when you open a long position on the APPLE stock, eToro positions itself first in a long position, but on the underlying market (i.e. it buys physically APPLE on the Nasdaq market), and then it opens for you a CFD position, adding the spread. Obviously all this is done in fractions of seconds.
Understanding the logic behind the application of leverage will help you understand how to calculate profits and potential losses.
You can operate on CFD shares with a lever from x1 to x5.
Let’s examine two case studies:
Investment: $ 50
Purchase price: $ 126.54 (ask price of our hypothetical book)
Equivalent share value controlled: ($ 50 * 1 leverage) / $ 126.54 = 0.39 units
Those that eToro calls units are, in fact, for this type of CFD, shares.
With a x1 leveraged position and an investment of $ 50, you are commanding a value of 0.39 APPLE shares.
Should you sell the CFD at $ 130, the price change would be as follows:
$ 130 – $ 126.54 = $ 3.46
Since you have not made an investment for the equivalent amount of an entire share, or, as eToro calls it, a unit, the profit of $ 3.46 must be multiplied by the corresponding equivalent unit, then:
$ 3.46 * 0.39 units = $ 1.3494
To sum up, if you had invested $ 126.54 you would have earned $ 3.46. Having invested $ 50 with leverage x1, you earned $ 1.3494.
Investment: $ 50
Purchase price: 126.54 (ask price of our hypothetical book)
Equivalent share value controlled ($ 50 * 5 leverage) / $ 126.54 = 1.97 units.
So with a x5 leveraged position, and an investment of $ 50, you are commanding a value of 1.97 APPLE shares (almost two shares).
Should you sell the CFD at $ 130, the price change would be as follows:
$ 130 – $ 126.54 = $ 3.46
But, as before, the value of your operation does not correspond to a share, but to almost 2, therefore the profit of $ 3.46 must be multiplied by the corresponding equivalent unit, then:
$ 3.46 * 1.97 units = $ 6.8162
To sum up, if you had invested $ 126.54 you would have earned $ 3.46. Having invested $ 50 Leverage x5 you earned $ 6.8162
This is the power of the CFD and of the ability to use leverage. From this, however, derives also possible risks if you do not know how to operate as a Social Trading professional.
Costs for Overnight operations
A negotiation can be closed within the day or be kept open for several days. In this last case, with the eToro CFD contract on shares, there is an overnight commission, variable depending on the underlying or whether you are long or short.
The overnight commission is calculated at 17:00 of New York. You can check the commissions values from their tables. Here’s how to do the calculations.
Taking the previous example:
Investment: $ 50
Purchase price: $ 126.54 (ask price of our hypothetical book)
Days of position open: 3
Overnight Commission: 0,025 (according to the table, “buy” section, since you’re long)
The overnight commissions are calculated daily.
Assuming to be at 17:00 EDT of the third day, the calculation to be done is:
$ 0.025 * 0.39 units = $ 0.00975
$ 0.00975 * 2 (number of nights) = $ 0.0195
Ultimately, if to close the position we would have taken three days, the final profit would have been:
$ 1.3494 – $ 0.0195 = $ 1.329
Being at X5 leverage instead…
Investment: $ 50
Purchase price: $ 126.54 (ask price of our hypothetical book)
Days of position open: 3
Overnight Commission: 0,025 (according to the table, “buy” section, since you’re long)
0,025$ * 1,97 units = 0,04925$
0,04925$ * 2 (number of nights) = 0,0985$
Ultimately, if to close the position we would have taken three days, the final profit would have been:
6,8162$ – 0,0985$ = 6,7177
The dividends with the eToro CFDs
Shares have the dividend variable, that is the profit distributed by the company to its shareholders. Operating with CFDs, actually you are not a shareholder of the company since you only have a contract that makes you gain or lose in relation to price fluctuations of the underlying.
It would be normal not to expect any dividends using CFDs, even for a long period.
With the eToro CFDs, however, the dividend is actually distributed. (here’s our post about the eToro Dividends)
If you are long on the CFD of a company when it decides to pay dividends, the dividend amount will be credited to your account in relation to the units covered with the investment.
In order to be accredited to the receipt of dividends you must be long on that precise CFD by a certain time, i.e. 17:00, New York time, on the day before the payment of the dividend itself. In practice, if you had the order still open the day before at 17:00, you will receive your dividend.
E.g.: The company APPLE deliberate a dividend of $ 3 per share held.
The buyer of Apple CFDs with 34.3 units will get a credit equal to:
34.3 units * $ 3 = $ 102.9
If instead you were a seller of the Apple CFDs with units equal to 34.3 you’ll get a charge (a loss) equal to:
-34.3 Units * $ 3 = $ -102.9
Although this thing might leave some doubt, you must also consider the fact that after a payment of dividends, the shares value of a company the next day usually drops down, as a simple matter of total economic value decreased. Therefore, the short order could easily gain some profit, while the long one could easily lose some.
Social Trading CFD
– EToro CFDs on indices
The CFDs on indices have for underlying the indices of the main trading venues, i.e. the so-called exchanges.
The calculation logic for the application of leverage and overnight commissions are the same of the shares. The difference is that With eToro (Europe) Ltd (CySEC regulated) and eToro (UK) the max leverage on indices is 20:1 on major indices and 10:1 for every other index.
– EToro CFDs on commodities
CFDs on commodities are not so many. EToro currently limits its offer to gold, silver and oil.
As for the CFD on the commodities, with eToro (Europe) Ltd (CySEC regulated) and eToro (UK) the max leverage on commodities is 10:1 with the exception of Gold (20:1).
– EToro CFDs on currency pairs
The list of currencies offered by eToro through its CFDs is very wide. With eToro (Europe) Ltd (CySEC regulated) and eToro (UK) the max leverage on forex major pairs such as EUR/USD is 30:1, while non-major pairs such as EUR/NZD are offered with a max leverage of 20:1.
The peculiarity you can find on currencies is that in some cases the overnight commissions can be positive. This is because the currency you’re buying may have a higher interest rate than that you’re selling.
Practical example with EUR / USD.
Euro pays interest of 0.05% annually;
Dollar pays interest of 0.25% annually.
If I sell EUR / USD, I sell euro and automatically buy dollars, therefore I pay 0.05% and I gain 0.25% per year.
Therefore I gain:
0.25 – 0.05 = 0.20% per year.
The value is multiplied by the units, dollars in this case, of value and divided for 365 days, thus obtaining an amount of credit for each day of overnight.
Obviously, by opening a long position on EUR / USD the calculation should be reversed and you will pay the daily interest in the form of negative overnight commission.
Margin with eToro CFDs
As you may have noticed, I have talked a lot about margin blocked on the account as collateral, but in the working examples with eToro I have not mentioned it at all.
I didn’t do it because the eToro policy of simplification does not foresee the management of the positions in the form of blocked margin, but in terms of investment, i.e. as investments with a certain leverage to control the operation.
To clear all up, let’s start with understanding how much capital your controlled in the previous example with X5 leverage.
The details of your operation are:
Investment: $ 50
Purchase price: 126.54 (ask price of our hypothetical book)
The equivalent value you are controlling with an operation with these characteristics is:
($ 50 * 5 leverage) / $ 126.54 =
$ 250 / $ 126.54 = 1.9756 units
1.9756 units * $ 126.54 (market price) = $ 250 equivalent value
Simplifying the operation, obviously the result is obtained by multiplying your investment for the leverage value:
$ 50 * 5 leverage = $ 250
Therefore, in a nutshell, if the leverage used is, for example, X5, the margin normally required by a broker is equal to 1/5 (= 0.20), or 20% of the equivalent operation. If it were x10, it would be 1/10 (= 0.10), or 10%, and so on. The greater the leverage, the more the margin requirement decreases.
Applying the 20% to the transaction of $ 250 you get a result of $ 50, which corresponds precisely to the capital blocked by eToro so you can negotiate the CFD with the characteristics described above.
By its own choice, however, eToro does not talk in terms of margins, an issue that, as we have seen, would imply some reasoning and calculations. The eToro attempt is to make things easier for the inexperienced investors.
EToro turns the margin blocked on the account as collateral into a capital taken off of the account and invested to finance the operation, thus giving the possibility to the less prepared investors to identify immediately what the extent of the amount invested in a single operation is, and the leverage applied.
For many traders and investors used to the standard platforms this diversity can be a slight obstacle at the beginning. The important thing is to understand that the underlying calculations are always the same. We always talk of a broker that provides leverage and that obviously protects itself through the capital in your account.
If the capital is invested, or blocked as margin, the things are still the same.
Anyway, now that we know in detail how the CFDs of this broker work, let’s find out the section where we can see them in action. I.e. the Markets section of eToro.
eToro Markets Section
Of all the companies and brokers who in recent years have implemented technologies and tools to support novice investors, eToro is definitely the one that has invested the most in the social aspect.
The Markets section is the technology that eToro has developed to enable social interaction among users, joining all the investors of the community.
To integrate the social activity with trading and investment, eToro is made up of several sections and sub-sections, ranging from the personal profile of a trader to that of the single underlying.
With our course we will review them all, to provide the knowledge and tools to make proper assessments and to fully exploit the potential of eToro.
In this lesson, we will focus on the eToro Markets section. To access it you just need to click Markets on the menu in your profile on the left.
What is the eToro Markets section?
On the main page of the eToro Markets section you have access to all the underlying you can negotiate through this broker.
This eToro section has several functions, some practical and some social:
- It brings together all the underlyings on which you can invest with eToro through its CFDs;
- It gives you a chance to begin to operate on them;
- It brings together all the social activities of the eToro community concerning the underlying in question. You will see the opening and closing investors’ positions, the reasons, the percentage of profit or loss, you can read analyses on the underlying and any comments or like. In short, all the feed dedicated or that in some way relate to that particular underlying;
- It is one of the only two channels to access to the stock market, as these instruments have not yet been included in the WebTrader platform, except through its search function (as we shall see in detail in the next lesson).
How the eToro Markets section looks like
The Markets section has two main areas.
- The upper part, where you can find the menu with the four asset classes of the negotiable underlying instrument and an advanced research tool;
- The central part, where eToro shows various underlyings divided by category or in alternative way, such as the Featured or Trending markets. Anyway, the actual CFDs in this part are displayed randomly.
For each of these modules you can go into the full list by clicking on the button: “View all”.
– STOCKS section
In the Stock category of the eToro Markets Section you have access to all the available equity underlyings.
Given that the eToro offer really focuses on Stock CFDs, and since they are many, this is where the Advanced search tool seen before, or the filter shown in the image above (they are the same thing), become really useful.
You can search for stock CFDs using two main filters.
- The stock exchange where they are listed the below:
- New York Nasdaq
- New York NYSE
- The sector the firm or society belong from:
- Basic Materials
- Consumer Goods
- Industrial Goods
Selecting a specific sector or a specific stock market can see a list of all the underlying relative.
Eg. Selecting Frankfurt, eToro will list all the CFDs whose underlying assets are quoted and traded in the Frankfurt Stock Exchange.
As you can see from the image, the underlying assets are placed in a table with some columns, in detail:
Market: with the TICKER the share, that is the abbreviation of recognition, the company name and the logo of the same.
Change: it shows the variation in percentage and in pips of the underlying price in relation to its reference price. By default it displays the change of the last day (i.e. from the closing price of the day before), but clicking on it you can change and show also the last week or last month.
Alongside there’s also a chart of the time frame you are viewing.
Sentiment: the percentage of eToro investors and traders who at that instant are positioned Long or Short, i.e. buying or sellling, on that particular CFD.
Bid and Ask: the two best prices for buying or selling the CFD. Clicking on them you will open the pop-up for the order entry. We will see this part in a dedicated lesson.
Beside each stock CFD, but it will be the same for currencies, indices and commodities, you can find a button with the + symbol. Clicking on it you can add all the CFDs you want to your WatchList, so you can follow the progress of your favorite underlying directly from your profile, without having to come back here every time.
– CURRENCIES section
The Currencies category is as shown in the image. As you can see, the columns are exactly the same as stock CFDs, with the same data reported.
– COMMODITIES section
As with the other two, also for commodities you will land directly on the page that displays a list of all the negotiable underlyings, that in this case, at the moment, are only three, oil, gold and silver.
I will not describe the characteristics of the columns, since the available data are the same I have already described for the stocks.
– INDICES section
The indices offered by eToro through its CFD are many, but certainly not all. Anyway, the major, the most important and most famous are all present.
The underlyings of the Markets Section
For more details on an underlying of your interest, being it currency, index, commodity or stock, just click on any of them to access the board of the single CFD.
This board of the underlyings products is a very interesting social tool. In addition to providing preliminary information on the nature of the instrument and giving you the opportunity to negotiate it, it offers you a view on how the eToro investors community is negotiating that instrument and who are the investors who are doing it.
It may not seem, but they are all elements that, in constructing a diversified portfolio, can come in handy when you have to identify the popular investor that are right for you.
Always visible at the top we can find:
- Name and Ticker: the trading acronym of that particular CFD;
- Current price;
- Changes in terms of pip and percentage from the closing price of the previous day;
- The + button to add it to the WatchList;
- The Trade button to show the form for opening the order.
Below, the structure of the board dedicated to the individual CFD is practically standard for all. It consists of two sub-pages: the Feed, which is always displayed first by default, and the Chart.
Let’s look at both.
The Feed page of the CFD
The central part is dedicated to the Live Feed, a key element for real Social Trading. Here you can see all that has been said and done by the eToro community regarding that single underlying, the opening and closing of operations, the analyses and comments, all with the name of their authors.
This way you can see if for the underlying of your interest there are professional investors who say or do things you may like, or that can direct and help you make better operational decisions. In short, real Social Trading activity within the community, in the true sense of the word.
You can choose to display only the Top Feed, i.e. the most important ones chosen by eToro based on merit and popularity, or to see them all indiscriminately.
On the lateral sidebar instead we find other details:
- Chart: linear and of the last month. Here for all the stock CDFs there is also a small description of the company or firm.
- In the section below we can see the number of eToro investors who added that product to their Watchlist (Followers), those that are materially investing money on the CFD (Investors) and the usual Sentiment between buyers and sellers.
- Related Markets: a random extract of the other underlying belonging to the category of the instrument in question.
- Investors: a random extract of some of the investors who have opened operations in real money on that particular CFD.
The Chart Page of the CFD
The other page of the CFD board is dedicated to a chart tool.
With this feature of eToro now you have access from here to a real chart for studying, without the need to use those of the WebTrader.
Then clicking on the button at the top right (as shown in red) you activate the Full Screen mode, as well as get access to all the tools of management, customization and studying that can be used on the chart (marked in blue).
From the Time Frame, to the chart type (if linear or candle sticks or bars), to the studies and indicators, with these tools you can work on the chart in great depth (if you are a professional trader of course).
As you may have noticed, the new Markets section is the heart of the eToro Social Trading.
Being able to focus on only one item at a time, to study it in depth looking at the comments, advices and the views of different investors, can definitely be a very important point of strength for your journey of growth, not only in Social Trading, but in the world of financial investment in general.
This section will also come in handy when you’ll want to look for those particular investors who focus on specific underlying assets, in order to find those investment profiles that might be suitable for your investment portfolio.
It’s definitely an approach of analysis and research not to be underestimated, especially if you want to build a diversified and balanced portfolio that can meet the different and difficult market conditions, combining the presence of different types of investors, from different investment techniques and various financial instruments.
As you will discover in the next lessons, one of the main activities of a social trader is precisely the research, study and identification of the investors that may fit his risk profile and be suitable for his investment portfolio.
Profile of a Trader or Popular Investor
Have you just opened and consulted the profile of an eToro Trader (or an eToro Popular Investor)?
Did you just realize in eToro there are a lot of useful data to be analyzed to see if the trader is really good and if he suits you?
Did you find it difficult to understand how those data work and how to interpret them?
Don’t worry, you are not alone.
If you want to figure out who the best traders are and how to possibly find them yourself, then here’s our guide: Best eToro Traders – Who are they and how to find them.
If instead you have already found some interesting traders, and you would like to study in deep his data and performance, then stay here.
Finished this post you will be able to view the profile of any trader and ride with his data like a pro.
But above all, you will be able to get a professional opinion about his real capacity.
Let’s get started.
The home page of the investor’s public profile comes with a top fixed area, and three sub-pages: Feed, Stats and Portfolio.
Name and Photo Section
The investor’s photo is used to identify him, since sometimes traders (coincidentally but also on purpose, trying to be copied by those distracted investors who were looking for a particular Popular Investor and didn’t notice the little difference) have similar names.
All images are checked by eToro. Those wishing to join the Popular Investor program are required to provide a photo of their profile corresponding to their face.
Username and Name
Next to the photo you can find the username and the real name of the trader, but the latter only in the case of a Popular Investor. These data also are used to uniquely identify the investor.
Alongside are the symbols to identify whether a trader is only “Verified” (symbol with green flag), or is also a Popular Investor (symbol with blue star).
A trader is “Verified” when he has proved eToro to be a real person, while he’s a Popular Investor when he decided to participate in the homonymous program and disclose his real photo and his real name, checked and verified by eToro.
It shows two values: the performance over the last three months (big), the performance from the previous day (small). These are two values with which you can get a first general idea of the trader. There’s always the rule that too exaggerated values, although positive, have to be considered suspiciously.
Follow and Copy
On the right of the upper block, as for the CFDs of the last lesson, are the two Follow and Copy buttons.
The Follow button with the + symbol will let you add the trader to your WatchList, which means starting to receive all of his feed in your feed wall (we’ll see more in detail this function in another lesson).
With the Copy button instead you will open the pop-up screen to decide the amount to invest for following the operations and investments of that particular trader. We will also see this in a lesson apart, but let me anticipate that first of all you will need to begin by pay attention to the modality you are in, if Real or Virtual Portfolio (you can select the mode from the left menu).
In case you had not yet deposited the capital in your account and you were in real mode, it may not be a problem. In fact, after clicking Copy you will be advised you do not have sufficient funds. But if you had an active account with real money, then you should be sure the mode you’re in, if Real or Virtual. Surely it’s better not to get confused and insert in Real a trader you wanted instead to test in the Virtual portfolio.
As mentioned in the previous lesson, pages with feeds are the heart of eToro’s Social Trading. Social Trading in fact does not necessarily mean “replicating automatically” the trades executed by another trader. Social Trading may also mean follow his moves, his ideas, learn from what he does, and possibly manually copy his trades on our own account.
To do all that you must add the trader to your WatchList. But before doing it, and begin to receive his feeds in your feed wall, you should examine the content, quality and frequency of his feeds.
Traders of Popular Investors do not interact all in the same way. Some are more social than others, some give many details about their future moves, some respond accurately to every question, some instead are quieter.
Using the drop down menu at the top you can decide whether to display only feeds relating to open or closed trades, of course provided with any comments by other investors. It’s a quick way to understand whether the trader explains his strategies.
Otherwise you can only view the feeds in which the trader has been mentioned, in practice all the other feeds excluding the trades one, or only the Top Feed, selected according to eToro parameters, or all the feeds indiscriminately.
Many, in the analysis phase, tend to underestimate this section, which instead can be very useful. We have repeatedly said that, ultimately, the real data of the performance is what you should rely on primarily, and that the social activities of the trader must always come after. The fact that it should come after, however, does not mean it cannot be useful and make you understand the big strengths or weaknesses of the trader.
You may find traders that look very good in terms of performance, but that never justify their choices, even when they seem to have made mistakes. You might not like it. You may find others instead with less exciting performance, but always explaining their motives, always putting their face and not running away even when they are wrong, and this could give you a lot more satisfaction.
This is the section where you can delve into this type of reasoning.
Always in the Feed page, in the sidebar on the right, we find other modules with some additional data.
In the first at the top we find:
- trader’s name and country of origin;
- the risk score (we’ll explain shortly);
- a few lines of introduction written by his own hand;
- a performance chart of the last year without data (we will see it soon)
In the second module instead we find data relating to the degree of popularity of the trader:
- the number of Followers, namely the people who have added that traders in their WatchList and therefore are receiving the feeds;
- the number of Copiers, namely the investors who instead have inserted him into their People-Based Portfolio and therefore are automatically replicating his trades;
- as this number has changed over the last 7 days, i.e. if the trader has lost or gained new investors who are copying him.
In the Top Traded module instead are shown the three underlyings on which the trader operates the most, to get an immediate idea if he’s a trader which operates more on stocks, indices, commodities or currencies.
Finally, in the last module, to facilitate the research and suggest you some possible variants, eToro offers you the Similar Traders, namely traders with similar characteristics to the one in question.
The statistics page shows the data about the trader’s performance.
Since in eToro there’s not a clear division between those who produce the trading strategies and those who copy them (such as ZuluTrade for example, between Signal Providers and Followers), but it’s actually a real network, normal traders and even Popular Investors, as well as trading on their own, can also copy other traders in their turn.
The system, then, takes into account all the operations performed on the investor’s account, both those made directly by him and those resulting from the replication of other traders via the Copy Trading function. Along with the next, the Portfolio, this is definitely one of the most important pages for the analysis and selection of popular traders or investors.
The Stats tab is divided into several modules:
The performance achieved by the investor is represented by an histogram chart.
In this section we find both the total annual performance, both the month-to-month. All values are expressed as a percentage of the investor’s assets value at the time of detection.
Formerly eToro was used to include within the performance even the profits earned for the copy trading activity, i.e. the commissions earned by the trader for the fact that someone replicated his signals.
This created some large discrepancies with the results obtained by investors instead. The pressures of the community have led eToro to replace the modified Dietz formula (used until then) with a more transparent formula, and above all, more practical to highlight on the investors account only the performance deriving from trading.
The formula now is this:
E1 – is the equity at the end of the month
W – is the total withdrawals made within the month
E0 – is the equity at the beginning of the month
D – is the total deposits made within the month
As a proof of the pudding to see if the formula actually excludes the interference of deposits and/or withdrawals in the performance calculation, let’s make an example.
Let’s assume that in a month a customer with an account of $ 10,000 has not made any investment, but has only withdrawn $ 1,000 and then deposited $ 6,000. If so, his performance, no matter what, should be 0%. Let’s check.
E1 = 15.000$
W = 1.000$
E0 = 10.000$
D = 6.000$
[(15.000 + 1.000) – (10.000 + 6.000)] / (10.000 + 6.000) =
(16.000 – 16.000) / 16.000 =
0 / 16.000 = 0
Indeed, the formula is right. Despite having an equity value at the end of the month higher than the beginning of the month, the result in terms of trading performance is 0.
– Risk Score
The Risk Score is a value ranging from 1 to 10, where 1 represents the lowest risk and 10 the highest risk.
The risk in this case is represented by the volatility of the underlyings on which the trader operates, and the combination of these instruments within his portfolio.
The basic theoretical idea is that each underlying has a daily movement range (daily average oscillation). Assuming that the instrument X moves on average per day of a 2% (upward or downward), if you multiply this value by 3 you will get a Statistical Average Movement, i.e. a range within which the underlying falls in 99% of cases.
In our example, 2% * 3 = 6%, which means that instrument X, in 99% of the days, will move between 0% and 6%, and there will be a 1% of days instead in which it will move beyond the 6 %, with a very powerful movement.
Scenarios like these are clearly very risky, and obviously the more the statistical average movement is big the more volatile, therefore dangerous, is the underlying.
However, the combination of instruments can reduce this risk level.
For example, if you buy EUR/USD it means you are long on euro and short on dollar. If at the same time you open an buy operation on USD/JPY, in this case you will be long on the dollar. So, at a portfolio level, being at the same time long and short on the dollar, you will limit your risk exposure on that particular currency, reducing the overall risk of the portfolio.
The eToro risk score, therefore, is a vote that is given both considering the specific instruments traded by the trader and the overall composition of his portfolio.
The risk index is clearly very important, not only relatively to the underlying on which the investment is made and the interaction between them inside of your portfolio, but also and especially to the combination of leverage used.
The following table shows how eToro considers the different levels of risk and what score it attributes them.
For instance, a risk greater than 10 indicates a daily potential oscillation of the account, positive or negative, higher than the 23.3%, which means that you may find yourself in one day with about a quarter of capital more, but of course even less.
If you’re someone who does not like head shots, this value should remain as low as possible, or at least, you have to find the right balance between the research of performance and the oscillations you’re willing to tolerate.
To investigate and check the “risk history” of the trader you have the opportunity to see the monthly Risk Scores of his account.
Below are instead the Drawdown figures, which is the maximum loss that the investor’s account has supported on the last day, week and year.
Drawdown is also a very important element for the evaluation of the potential operational risk of the trader in question, which is why we talk about it in detail during the next lesson.
As mentioned above, the number of Copiers indicates how many eToro investors are investing real money on that trader, replicating his operations. In this case, however, you also have a chart that shows how this number evolved historically.
Finding some sudden and massive losses of copiers can be an indication of non-stability of the trader, of inconstancy in the performance that sometimes worsens dramatically and all at once (most of the time because the underlying strategy is a martingale or a averaging-down).
Immediately below is the AUM (Assets Under Management), i.e. the total capital invested by all the copiers on that trader. It also indicates how much capital the trader could leverage each time he operates. In other words, considering the trader as a Fund Manager, we could say that this number shows how much money he has in his fund.
These values identify definitely the popularity of the investor but, as I said before, are not necessarily index of talent. Moreover, even if the investor is really good, it’s not necessarily true that he’s suitable for the portfolio you want to build.
Under the Trading section are shown a series of statistical data on the performance of the trader.
All data are really very useful, as they serve to understand the operational style of the investor you are considering to include in your people-based-portfolio. Not many, but they are all very significant.
Total Trades: the amount of operations performed in the last year.
Profitable: percentage that identifies the amount of profitable operations over the total.
Average Profit, Average Loss: always in proportion, the average size of gains and the average size of losses. With these values you can immediately realize if the trader on average in each transaction loses more or less of what he earns. As explained even in the Social Trading course, this value should be considered with the Profitable figure, to understand the true capacity of the trader to generate profit.
Asset Bar: it graphically identifies the quantity, and the proportion between them, of assets with which the investor has worked.
Frequently Traded: as the last item in this section eToro identifies three instruments on which the investor has worked the most (the most frequently traded). Of these it shows:
- The type of underlying asset;
- The number of trades executed;
- What percentage these trades represent of the total;
- How many times have been closed at a profit, as a percentage;
- The average profit and loss.
– Additional Stats
Another interesting section, with very useful statistics to be able to make evaluations, is the Additional Statistics. There are indicated:
Trades per Week: how many operations the trader opens approximately every week. This data can give information on his trading style, especially if used in comparison with other values.
Average Holding Time: how long an operation is kept open on average. It’s another indication, but not a definite proof, to determine if you are facing a long-term trader, rather than a day trader.
Active Since: it identifies the seniority of the investor within eToro.
Profitable Weeks: expressed as a percentage, it identifies the amount of weeks, on the total, he closed with a gain. The calculation considers the value of the account at the end of the week evaluating the value of open and closed transactions. If the value of the account is higher than the previous week, then it will be considered positive, on the contrary it will be considered negative.
Here eToro allows you to study the composition of the current and past portfolio of the investor, as well as letting you know on what underlyings he usually works and what results he’s able to get with them.
All the data we will now see can be set according to different time period, that are Current Profit, this week, 30 days, 3 months, 6 months, 1 year, 2 years, 3 years, selectable from a drop down menu at the beginning of page on the right.
Selecting Current Profit you will observe the composition of the investment portfolio of the trader in that precise moment. Selecting instead 30 days, 3 months, etc, the result will be given by an average of that last period.
When clicking on Portfolio, the first section that appears is the Allocation.
Here you can see, for the period under review, how the trader was placed, in percentage terms, on the various assets, considering also liquidity (money not invested) he has maintained to deal with any negative situations or to invest more .
The assets are:
- People (money invested to copy other traders);
- Balance (liquidity on the account accessible for further investments).
The Performance option shows the percentage of profit or loss of the positions taken by the trader, divided by underlyings, relatively to the reference period, to have a graphical view of how many complementary instruments were used and how they were individually profitable.
In the event of a trader who has invested in many assets you can find two arrows on the side to scroll right and left and view all the underlyings.
– Portfolio Breakdown
The same list of underlyings seen in the chart immediately above can be found in this section with the same data, and in addition, with the Equity % figure, i.e. the identification of the capital, as a percentage on the total, that was allocated in the given period for that particular underlying. In some cases you will see values at 0%. It might seem a mistake but is actually a simple rounding of very small figures.
At the bottom there’s also the Available Balance, which is the percentage of capital in liquid asset in the account for that period. As mentioned before, on time period different from Current Profit, the Available Balance is an average value.
– Open Trades
To access the Open Trades section you have to position the mouse on the Portfolio label and select it from the drop-down list.
By default the view is set to Flat, which means displaying them in a simple general list.
For each transaction, you can view:
- The type of underlying, with identification picture;
- if the operation is open Long or Short;
- the opening price and the percentage of gain;
- the Stop Loss and Take Profit values;
- if it has been carried over weekend;
- how many days ago it has been opened;
- if the operation has been copied by some investors.
If the trader you are analyzing is using Copy Trading a lot, replicating transactions from other traders, with the Copy Trader view you can see all the transactions grouped by investor that generated them.
The other option in the Portfolio drop down menu is the History.
Here is the list of the last 100 closed transactions, in any case no later than 3 months. For example, if a trader operates with 10 targeted operations per month, in this section you will find only 30 operations visible.
This is for sure one of the major deficiencies of eToro. Other companies (ZuluTrade among all) have made available and even downloadable the total list of operations performed by the trader, because, beyond any other parameter, these are the elements with which an investor can really, if he wishes, deepen the study.
We continue to hope that this policy will change in the future.
In the table, for each operation you can view:
- underlying negotiated with identification picture;
- positioning, whether buy or sell;
- how long ago the operation has been closed and how, if manually or through stop loss or take profit.
- the opening price;
- the closing price;
- the percentage of gain or loss on the invested capital;
- here also is indicated if the operation has been copied and by whom.
eToro Charts Section on the trader’s performance
In the last section, you can view a useful equity line of the trader’s account.
By clicking in the corner of the graph, at the top right, on the “full screen” symbol, you can access all the functions.
The first thing to note is the ability to change the time frame. In the first phase of the analysis of a trader, it is definitely useful to display the greatest period possible, so it is good to set it to “last two years”.
With the Wheel button, you can edit some basic settings of the chart.
With the Drawing button you have access to all the graphical, technical and analysis tools. Such indicators usually are used on trading charts, such as on the chart of a currency pair.
In the case of an equity line chart, I don’t see any particular usefulness. However, someone may try to play with some and observe the performance of a trader from a purely technical point of view, with some oscillator, for example with the Bollinger bands.
One thing, however, is useful, and it’s the written Annotations (as well as other tools with which you can “draw” on the chart). With these options, you can literally write your notes directly on the graph, wherever you prefer, perhaps to graphically remind the happening of a specific event (Brexit? Greece Debt Crisis?).
NOTE: To delete any item you entered in the chart just click on it but with the right mouse button.
Let’s see now a really interesting option. I.e. the function to overlay, over the trader’s line, the chartst of other instruments or the equity line of other traders.
Click on the appropriate button, type the first few letters of the trader’s name or of the TICKER instrument (for example EURUSD or SPX500), and click on the desired item that will appear in the list.
At that point, on the chart will appear both lines, one above the other.
This feature can really come in handy by placing data and performance in a totally different perspective than usual.
- Do you want to compare the performance of two or more traders in the last year?
- Do you want to compare the performance of one or more traders against a benchmark (e.g. S&P 500)?
Use and test this function thoroughly, it will really let you think in perspective.
In conclusion, this chart is extremely useful to work on one of the most important parameters of risk analysis, that is the drawdown.
As we shall see in the next lesson, thanks to this chart we can go beyond the data provided directly by eToro, and manually obtain new data on the trader’s maximum drawdown, to have an even broader and detailed picture of his performance.
Let’s dive right into the next lesson.
How the Drawdown in eToro works and what is shows
One of the key steps to becoming an evolved investor with eToro is definitely identifying the risks of each investment, and one of the key elements to determine the risk of the investor’s trading strategy is the Drawdown.
Risk and Reward
In the investment world, if you want to gain you have to risk something.
The yield is always linked to the risk. Usually, the greater the risk and the greater the possibility of return. But sometimes it’s not so, and paradoxically you can risk a lot to have very low yields.
So the first goal of an investor, be it a social trader or other nature, it must be precisely to identify, understand the risk and then try to limit it as much as possible.
That’s why we at InvestinGoal, before speaking of returns, first thing we always talk about risks and the identification of possible dangers. It’s not a lack of optimism, and we also know that commercially it may not be the best approach, but when it comes to investing capitals there’s no possible excuse, because the first main goal to be sponsored is without any doubt the preservation of capital.
In other words, your first priority should be to identify the extent of the risk to which you are subjecting your account.
First protect, and then earn.
Obviously, when you will know how to identify and manage the risk of your portfolio, the next step will be to find the investment (the traders) who, with the same risk, will give you the highest returns.
The risk of a people-based-portfolio is related to the operational style of the individual investors you will decide to replicate and their total composition in your portfolio.
The risk associated with an individual investor depends on:
- his capacity to trade;
- the strategy he uses;
- the tools he uses;
- their volatility.
One of the fundamental elements to understand the riskiness of the investment strategy used by the trader is precisely the calculation of drawdown.
Drawdown is the intensity of the reduction in value of a capital sum, in percentage or absolute terms, and may be referred to a single order or to the entire strategy.
One of the first things we do when we get in touch with a Social Trading company is indeed to verify if it shows this data correctly, or otherwise, to understand in detail how it is expressed and why.
The Drawdown figure of eToro
At eToro you can find the drawdown figures in the Statistics section of the profile of a trader or Popular Investor.
Studying the Drawdown is crucial to:
- understand the fluctuations to which your capital can be subjected with that particular strategy;
- understand how the trader acted in the loss phases, i.e. in times of higher risk.
As I mentioned, within the profile, stats section, there’s the module dedicated to the risk, where we find precisely the Drawdown data.
The data provided by eToro are related to Max DrawDown, namely the maximum losses, and are:
Daily: maximum negative swing of the account during a day;
Weekly: maximum negative swing of the account during a week;
Yearly: maximum negative swing of the account during a year.
How eToro calculates the Max Drawdown
eToro, as opposed to other Social Trading companies (see the ZuluTrade Drawdown), provides the conventionally recognized result of Max Drawdown.
It’s not something obvious, as other companies provide a Max DrawDown value calculated differently from what is reported in the classic manuals of financial mathematics.
EToro makes a daily calculation of profits/losses through the new formula that replaces the old modified Dietz (see the previous lesson to find out the calculation). The new formula uses as data the assets at the end and start of the day (which in eToro corresponds to the value Account Balance, plus or minus the equivalent of open positions in the market in Net Profit), while ensuring that this value is distorted by any deposits or withdrawals.
Although the formula used to calculate the DrawDown is correct, the fact that the calculation is applied not to the entire Trader’s history but rather only to time portions (worst day, week or year) gives Max DrawDown results potentially erroneous, and therefore makes the Drawdown value shown by eToro of little use.
It is certainly useful to see different time horizons. Observing this value to one day, one week and one year, makes you realize the possible fluctuations in the account for different time frames.
But the problem remains that these values are not accompanied by a calculation on the entire operating history of the trader, which would give you the correct maximum DrawDown figure, which is in fact the most important value for determining the operational risk of an investor.
Despite the clear improvement of eToro in data sharing, this is still a legacy of the old style, where oversimplification was at the expense of effectiveness and usefulness.
Being an investment of money, it would be far preferable to have access to all the data available.
Also, what you can notice is the absence of the most important figure, the overall Max DrawDown, which is the maximum negative event ever occurred since the beginning of operations of the trader up to the moment of your analysis.
The maximum depth of analysis therefore is still with the last year (Yearly figure).
One year history is certainly significant, but if the investor has an operating history of five years, it becomes an unrepresentative figure.
For example, it might be that an event that really put under stress the operational strategy of the investor occurred three years ago. If the max DrawDown would have had an overall depth, you’d be able to detect it, but with the current depth of analysis provided by eToro, this is not possible.
How to proceed
Thanks to a new feature of the eToro platform we can partially improve this situation.
EToro has recently introduced a new Charts section you can easily access from any trader profile.
In this section you can find an equity line showing the evolution of the trader’s balance. The actual amount of the trader’s balance is not shown (for privacy reasons), but the equity line is built on a hypothetical starting balance of $ 10,000.
For our purpose, though, is totally fine.
You can view the graph up to a depth of two years. This means that, manually, we can see and calculate the Max Drawdown of the last two years.
As said before, the trader could also have a much longer history, even up to 5 years, so in that case you won’t be able to tell if that Max DD you’re finding on this chart is really the greatest.
But if the trader’s history is less or equal to 2 years, you can be sure you have found the true total Max Drawdown.
Let’s see how.
Click on the button to enlarge the chart. This way you can access the Period options and choose “Last two years”.
Then click on the button to activate the cursor to visualize the values of the point on which you position.
At that point you have to visually find what you think to be the largest drawdown, the deepest.
With the cursor position on two points, and then write down the values of these two points:
- first on the highest point reached before the start of the drawdown
- then on the lowest achieved by the same Drawdown
Now, with the two values in hand, to understand how much the Drawdown percentage is, you can use a percentages calculator (there are many on the internet), or you can also do it on your own.
First thing, do a subtraction and find the DD in absolute terms, i.e.:
Point 1 – Point 2 = Absolute DD value
Then, simply divide these result for the value of the point 1, therefore:
(Absolute DD Value) / Point 1 = Max DD percentage
To make an example with the image data:
123.672 $ – 94.143 $ = 29.529 $
29.529 $ / 123.672 $ = 0,238 (x100)
= 24 % Max DD percentage
As you can see from the first image of the lesson, eToro, for Noa Trijbox, shows an annual drawdown of 16.93%.
What we have found manually with this method, instead, shows a 24%.
You can understand by yourself the importance of working in this way in order to achieve the most truthful data possible.
Best eToro traders and investors
Once you understand how to analyze an eToro trader to grasp its real potential, it is time to learn to find them.
There are thousands of traders on eToro, which is why learning to filter them and quickly find the most interesting ones can help us considerably in building our strategy and our investment portfolio.
From direct experience, relying on the traders suggested by eToro itself is absolutely not a good strategy. When a trader rises to the honors of the chronology (and of the eToro ranking) for the great performances, most of the time also means that the risks incurred to obtain those performances have been high.
Given the beauty and also the complexity of the topic, we have created a very detailed tutorial apart that will guide you step by step to the research and discovery of the best eToro traders.
Here it is: the best eToro traders to copy.
Here instead we proceed with the discovery of everything you can do with the eToro trading platform.
What you can do with the eToro Social Trading platform
After analyzing the pages dedicated to the eToro CFD and to the Popular Investors’ profile, we can move on to look at your personal profile and discover all the features of the new eToro platform.
Click here to open your eToro Account and discover the new platform.
The first thing to say is that in every new eToro page, both in your profile page or anywhere else, you will always find two sections: the upper bar and the menu on the side.
In the upper bar there are 3 elements:
- the search bar to look for CFD (currencies, shares, indices, commodities) or eToro network people;
- the pencil, with which, instead, you open a pop-up to be able to write your posts, or create your own feeds. With eToro it works like with Facebook or Twitter, adding “@” before the names of the people you will mention that person in your post, and adding the tag “$” before the ticker of the CFD you will make sure that your post will end up in the feed aggregator of that particular underlying;
- On the far right, the button for the notifications view.
Now, regarding the menu on the left, instead of continuing in order of appearance, it is convenient to talk about the various elements in order of importance.
For this reason, the first thing to talk about the new eToro Platform is definitely the Portfolio.
The eToro Platform
– Portfolio section
By far, the thing to be more careful about is the mode selection, which can be Real or Virtual Portfolio. You can select them by clicking the drop-down menu as shown.
Real Portfolio mode is the public front of your profile, visible to all the users of the community. This means that users will only see your moves (so your stats) made with real money.
With Virtual Portfolio mode, however, you have the ability to operate with the same functionality of a live account, using an initial capital of 50,000 usd. However, everything you do will not be publicly shown in any way.
What is new from the old to the new eToro platform is that now you can change directly and easily from one mode to another, directly from your platform.
The functionalities of control, connection, management of traders and the opening of new orders are completely the same in both Real and Virtual versions. This means you have to be very careful and always make sure about the mode you are operating in, or you could run the risk of opening some trades or connecting some traders on the Real account when you planned to do it on the Virtual one.
So, if on one hand, in the new eToro platform, the mode management has been simplified, on the other this has created a “risk” of security, considering that, being the modes completely identical, the user may not notice the modality which he’s on.
Therefore, PAY ALWAYS ATTENTION TO THE MODE YOU ARE ON.
Instead, by clicking on “Portfolio”, always from the menu, you can access to the proper section.
Below there are the details on the current composition of the assets, which show the capital available for trading, the total invested capital, and the related Profit/Loss.
Instead, the upper space is dedicated to the list of all open positions, with some details on the investment and the performances. Here you can find the trades opened by you or those replicated by other traders. Just by clicking on the name of the trader you can open a list with all the operations replicated by that specific investor and still in the market.
With this views we can see all the details about the opened trades as well as close them if we wanted to.
Besides, in the top row next to the photo of the trader we find the Copy Stop Loss entry, the value that we set when we connected that trader, and that shows the maximum amount of losses that we are willing to bear with that trader before letting eToro automatically disable it (we’ll see it better in the lesson on the eToro form for order entry and replication).
It’s important to know where to find that value since it’s a fundamental tool of management and protection of the portfolio. Obviously, the P/L (Profit/Loss) next to it will show whether or not we are getting close to that limit. This does not mean that, in the event of proximity, we must increase the value so as to allow greater losses. The situation is identical to that of a trader who moves the stop loss of an operation to prevent it from being executed and not account for the loss at that time, hoping for a lucky break. Let me tell you, luck does not exist in this field, and moves like this are just a perfect formula for failure.
In the Advanced eToro course we will explain precisely how to use these security tools. Once they are set, according to certain logic and certain calculations, they must remain so, otherwise they would not have sense. It’s better to account for a slight loss today than burning the whole account tomorrow.
On the same row, at the far right, you can find the symbol in the shape of a “wheel”, where you can precisely manage and modify this value, in addition to other possibilities. In general you can:
- Add funds
- Remove funds
- Pause replication: the new trade opened by the trader will not be replicated to your account, but those present on your account at that time will stay open; however, the trader will still be able to close them, either manually or via Stop Loss or Take Profit command.
- Change the Copy Stop Loss (as just seen)
- Stop replication: signals by traders will no longer be replicated and all the positions in the portfolio will be closed immediately
- Write a new post: or send a comment (a feed) directly to the trader
Going back to the overall portfolio, with the “funnel” symbol at the top right , you can filter the list and show only the categories of operations you want, in case they were many and there was confusion.
The most important symbol, however, is the one to the left, in the shape of a “Pie Chart” .
With this button you can enter the view of your portfolio as a graph. You can view your portfolio both as an “Allocation” and an “Exposure”.
Portfolio Allocation Chart
The first Allocation Chart shows how and how much you have invested your money in three main categories:
- Markets: it represents the share of capital you have used to open positions on your own on any eToro CFDs (i.e. currencies, stocks, indexes, commodities);
- People: it’s the overall share of capital you have invested for replying signals of other traders and investors, in other terms the money you’re using for Copy Trading;
- Balance: the capital you haven’t used, which means it’s free and available.
We at InvestinGoal have always been in favor of maintaining a share of the portfolio as protection margin, so as not invested capital (the Assets value in the case of this chart). A chart like that can make you quickly see the size of this margin. You could realize that you’ve invested too much, and thus be at risk, or too little, which means you’re not using your money at your best.
By using the box on the right of the chart you can look at the detail of each main category. Just click on Markets or People to view the two charts which show the percentage of capital invested on your own in currency, stock, index or commodity markets, and for the other on individual traders.
From there, we can go even further and, always clicking on each element, look at the chart with the individual CFD products or, in the case of a trader, return to his screen, just seen before, where there are listed all the trades opened by him.
To summarize and clarify, with the Allocation chart you can make a distinction between investments personally made by you (Markets section) and those made by all the traders you are replicating (People Section).
Portfolio Exposure Chart
Instead, with the Exposure Chart it’s different. There are no distinctions between your actions and those of the replicated traders, but it’s an overall picture of your portfolio and how it is exposed to various financial products, regardless of whom created the trade.
Since this is a unique portfolio, managed both by you and by the traders and the investors you have decided to replicate, it’s essential to look at the disposition of money regardless of who is moving them around, to see if there are imbalances.
As before, you can click on each category to go into detail.
You could be a trader who prefers the EUR/USD pair for your activities, and realize that even traders you follow operate on the same exchange. With this chart, in the currencies section, you would see a part entirely dedicated to the EUR/USD pair and the overexposure to this currency exchange would be clear.
In addition to these two important views on the portfolio (by activities list and by chart), by clicking on the word “Portfolio” on the top left you can access to two other important sections.
Portfolio: Orders section
Within this section you can find the lists of any trading orders already included in the platform and pending to be executed, both yours and those of all the traders that you are replicating with the Copy Trading.
It’s interesting to observe in advance what are the future moves of the investors you are following, and perhaps ask questions about the motivations of the various choices.
Portfolio: History section
The last of the pages in the Portfolio section is History. We have already said how important it is to observe the moves made in the past to try to understand what to expect from the future.
This is certainly true when you analyze a trader to see if you should follow him or not, but it’s equally important even for yourself.
Periodically, it is essential to look at your history to understand what has been done, the operations that have been opened, by whom, how they were closed, if there were problems, etc.
The old eToro was absolutely no good in this. Whether you wanted to look at the trade of other investors, or you wanted to view those in your demo account, eToro limited the history just to the last 100 operations, but no later than 3 months.
Instead, today, with the new eToro, they provide the last three months, the last six months, and finally a full year of History. This is definitely an improvement and an opportunity not to be missed for all the investors.
– Watchlist Section
Instead, the eToro Watchlist Section is a great tool to track everything you are interested in, and not only traders you are replicating.
From every page of all the underlying CFD and all the eToro traders, by clicking on the “+” button you can add them to your Watchlist, which are nothing more than lists of interest to which you can access directly from your platform.
Obviously, you can create several lists and add or remove items at your pleasure.
By creating a Watchlist, you can view the main data of the elements (price, variations, sentiment) and also have the trading buttons (or connecting buttons in the case of people) at hand, without necessarily having to go to the related sections.
The reasons to create lists of favorites are many. Here are some types of lists you could create:
- list of your favorite traders connected in your portfolio
- list of your favorite traders not yet connected, pending verification
- list of traders specialized in a particular field (currencies or indexes or commodities or shares)
- list of traders to be connected only at precise periods of market
- list of shares, indices, currencies or commodities to which you are particularly interested
- list of shares, indices, currencies or commodities on which you usually invest
- list of underlyings which usually have a positive or negative correlation between them
a combination of various elements
These are just some ideas to give you a hint on how to use this useful tool of eToro. You can be creative as you please, even because you can create hybrid lists, containing both people and financial instruments.
News Feed Wall
The new eToro News Feed is the section that most of all looks like the well-known Social Network Facebook. In this part of your platform it really seems like using a social network rather than a trading tool, and indeed it is.
Here we find all the feeds generated by the eToro community and that could be in our interest.
They are divided into two modes, which can be accessed from the drop-down menu in the upper right corner:
- News Feed: with this mode you will only see feeds generated by traders in your lists of Favorites, or even by other traders but containing $ tags related to financial instruments included in your lists. You could see feeds of people you do not know, but you see them because they deal with a CFD, such as $EURUSD or $APPL, that you’ve added to your lists of favorites.
- Popular Investor: with this mode, instead, eToro shows the feeds of the different Popular Investors, not necessarily those you are following but also others you do not know, if eToro thinks that their feeds are popular and may interest you. It’s a way for eToro to introduce other Popular Investors to you and create a window of presentation.
In the right section, instead, we can find two other interesting elements.
The first at the top is the amount of your assets, which corresponds to the Account Balance (the capital not invested) plus the Invested Amount plus the Net Profit.
Above it, it’s shown the gain both in monetary and in percentage terms from the beginning of the month.
Below, very important, it’s indicated if you are in Real or Virtual mode.
The other element, instead, is a sort of quick window on the Portfolio, on your Watchlist and on the People and Markets searching tool.
By clicking on the pie chart on the left you can see the Top Gainer or Losers, i.e. the traders or single positions that are winning or losing the most.
With the middle one, instead, you can view the WatchList, although you can view only 5 items.
With the star symbol, instead, you can quickly make some fast searches, viewing in particular the first 5:
- Trend Investors
- Trend Markets
- The More Copied
- The More Invested
Other section of the menu
Basically, the most important parts of your platform which can be accessed from the menu on the left are those described above. We have already dealt with the People section for the eToro traders search and the eToro Markets section in their respective lessons.
In the Other section there are the other non-core but still important functions. In particular:
- Help: by clicking it you will start a tutorial for the basic functioning of the platform
- Invite Friends: eToro is famous for affiliate programs and for the awards given to the users who bring new customers; here, you can access a program for inviting new users
- Old WebTrader: for the most loyal, eToro still provides access to the WebTrader old platform
- Withdraw Funds: one of the buttons that you are hoping to press as soon as possible, the one to order the withdrawal of your funds, of course, to be able to withdraw winnings
- Settings: to select the language, what page you want to see first at the login to the platform, and if you want a pop-up to appear to share your new trades
Very last note. If you really did not understand something or you missed some details, on the bottom right you have the ability to chat directly and quickly with the eToro customer service.
How to connect and copy a trader
To really learn to use eToro, you need to study and thoroughly understand the forms for executing the trading orders (if you want to do it by yourself with Social Trading) and for the automatic replication of other investors (if you want instead to invest with Copy Trading).
You have to deepen this point because, as already said, the operational approach of this broker is not conventional to the standards, and this, for some, at first glance may create some confusion.
Let’s start with the execution form of a classic order.
eToro form for trading orders
It’s the necessary function to enable a retail trader to trade independently or to manually replicate the transactions executed by those professional investors you’re tracking.
Whether you are in the Market section, or in one of your WatchLists, trying negotiating any instruments (currency pair, share, index, commodity), you will be presented with a form like this.
Within this form you can set all the parameters needed to do the transaction.
The top shall indicate whether the transaction you are about to perform is a buy or sell. If you were wrong and wanted to enter a transaction on the opposite direction, you can do it immediately by clicking at the top of the form.
Immediately below there are:
- the ticker name and the image of the instrument in which you’re doing the transaction
- the current price of the instrument
- the change in price from the previous day, in pips and percentage
On the side you can find a small drop-down menu to set the transaction as a market order (Trade), instantly executed at the current price, or as pending (Order), to be activated upon reaching a certain price.
Selecting Order, in fact, the form will show another row to specify the price at which you want to do the transaction (Rate).
NB: to set amounts and parameters you will always find the + and – buttons, but you can also enter the values manually by clicking the value itself.
Here you have to set the capital of your account you have decided to allocate to the trading operation. To a person accustomed to the standard forms, the Amount value corresponds in fact to the safety margin blocked by the broker to allow you to open the transaction. Just below that to the right, eToro indicates what percentage of the total of your capital the entered value corresponds. On the left, instead, it indicates how many units you’re actually trading given the multiplier effect, which is the lever (Leverage).
Below, in the middle, you can change the multiplier. The value you set here will be multiplied with the Amount value to determine the actual amount of units invested. Always remember that the higher the multiplier, the greater the leverage applied to the operation will be and consequently the greater the risk too.
– Stop Loss and Take Profit
On the sides of Leverage you can set the values of maximum loss and maximum profit.
You can choose to work in monetary terms or with more traditional price levels. In the case of monetary value, below the amount you have set, you can find the corresponding market price at which the transaction will be closed, to give you a precise indication of the profit or the loss determined by the invested capital and the applied leverage. In practice, given the monetary value of stop loss or take profit that you have decided to set up, eToro also shows you at what precise level of price those monetary values correspond.
In both views, eToro also indicates what percentage of the invested capital the eventual win or loss corresponds.
Below the Open Trade button eToro finally shows how much the Rollover interest will amount, both daily and weekly if the transaction is kept open during the weekend.
As you will notice, since the Rollovers interest are calculated on actual invested units, by increasing or decreasing the invested amount or used leverage, the interest will increase or decrease in turn.
eToro form for the trader connection
After searching and founding an investor that shows those features that meet and are consistent with your investment portfolio, all you have to do is enable the Copy Trading function on him by clicking the Copy button.
At this point you will open a form.
This form, at the top, shows the photo, the username and the real name of the trader in question, together with an indication of what was gained or lost as a percentage over the last three months.
In the old eToro, since the navigation always happened through the Live Account, it was then asked if you want the trade to be replicated in your Practice one. In this new eToro, Instead, you can navigate the same way in both modality, Real or Virtual Portfolio. You must therefore be sure of the mode you are at that moment. To quickly check it, just look down, in the strip where all the data of your capital are displayed. On the right, under the Equity value, it’s indicated whether you are in Virtual or Real mode.
Here you must enter the amount you have decided to subtract from your account available balance and to be invested in the activity of replication of the transactions executed by the trader in question.
The minimum capital you can allocate per investor is $ 100, with a maximum of the 40% of your available balance, or $ 50,000. If your account balance is less than $ 250, then you can also allocate all the capital, without limitation, to an individual investor.
After setting this value, eToro will calculate and show you very important information, which are:
- what percentage of the balance of your account the invested amount represents.
- the Average Copied Trades Size, i.e. what amount you’ll invest in each trade replicated by that investor on average.
The last value is vital to understand what chances you will have to replicate all his transactions. To be sure, the value must be more than 1 $ (the more the better), but considering that, below 1 $, eToro doesn’t allow the opening of the position, and therefore not even the replication of the trade executed by the investor you are copying.
If, by investing more capital, you still cannot reach the Average Copied Trades Size of $ 1, and should you allocate a capital likely to compromise the diversification of your portfolio to reach that value, then our advice is to look for something else. In the lessons of the eToro Advanced Course we will explain in detail all these things.
– Stop losses
Below the section of the capital to invest, you can set a maximum loss on that capital, at which the replication activity will be stopped automatically. By default, the limit is set to 40%, but of course you can decide to change it by clicking on the corresponding button and setting a new limit or a new capital.
As indicated, you can vary from a minimum of 5%, very narrow, to a maximum of 95%, which means almost all of the capital. As an example, if you invest $ 2,000 in an investor and set 40% of protection, if that trader will make you lose $ 800, it would be disconnected automatically.
– Copy Open Trades
If you activate this feature by entering the flag, when you will start copying, eToro will open on your account all the positions the trader has in his account at that time, but obviously at the current market prices. It’s a function that deserves to be seen in detail, because you have to make some considerations. In some cases it is good to use it, in others it’s not, and that’s why we’ll talk about it in detail in the Advanced Course.
The eToro “inverse” method
In the classic platforms, to open a trade, the user has set upstream the leverage that should be used for all the trades, and then he choses the units he wants to invest (lots, mini-lots, micro-lots). According to the capital in his account, these factors determine the amount of capital that the broker will block (making it unusable until the closing of the transaction or until the opening of an operation of equal size but of opposite sign) as a safety margin.
EToro, instead,turns the whole thing around. Being margin a blocked part of the capital, which means that is no longer usable until the closing of the related trade, the margin can also be considered as a invested capital, which indeed it is.
So, the user must decide what capital he wants to invest, then choose from time to time the lever he wants to use, and this will determine the units that will be actually invested in that transaction, or in that investor.
Having said that, in this lesson we gave you a smattering of all the necessary information to execute the opening of a trade or start replicating all the transactions of an investor.
With the lessons of the eToro Advanced Course, instead, we will talk about how, when and why it is useful to copy a transaction of an investor, or directly replicate all his strategy on the basis of his operational features, and how these can work in a wider portfolio composed by more investors.
Creating a diversified portfolio with eToro
In finance and investment, when we talk about “portfolio”, it’s also very easy to hear about the concept of “diversification”.
These two elements, in fact, go together and “diversified portfolio” is without any doubt the leitmotif of any discussion on how to best invest. In our case, also as regards to eToro.
The concept of diversification, all in all, is pretty simple. In fact it means:
having in the portfolio various financial instruments and various underlyings for financial instrument, in order to reduce the overall risk of the portfolio.
“Financial instruments” mean the macro-categories on which you can invest, i.e. currencies, equities, bonds, commodities, derivatives, futures, options and so on.
Instead, “underlyings” means the specific products of these macro-categories, such as the single currency pairs like EUR/USD for currencies, Google shares for equities, the US Treasuries for bonds, gold for commodities, etc.
In other words, diversification means investing on many fronts, on multiple instruments, different in nature, characteristics and degree of risk, so as not to depend on the fate of a single investment.
One of the most important things to understand about the degree of diversification is that it doesn’t depend on the “quantity” of the investments included in the portfolio, but more on their nature and their correlation.
As Warren Buffet often said: “Wide diversification is only required when investors do not understand what they are doing.”
The principle of correlation
To get a diversified portfolio it’s not necessary to enter a lot of instruments and underlyings. What matters most is to consider their nature and the correlation between them.
A positive or negative correlation between two instruments is the tendency to move respectively in the same direction or vice versa. It’s always important that this is very low or non-existent, so that the returns move independently from each other.
If the components of the portfolio are too interrelated, perhaps positively, there’s the risk that the entire portfolio turns loss-making at the same time, creating potential risk situations.
In case of negative correlation, instead, the profitability of the portfolio could be affected, because the profit of an instrument could be equal to the loss of the other, or vice versa.
For this reason it’s always advisable to pay attention to the correlations and, where possible, keep them to a minimum, so that the performance of the instruments are truly independent, and so diversified.
The benefits of diversification
A proper portfolio diversification leads to the obvious benefits of reducing volatility and protection against high drawdown risk.
These two concepts often go together, but it’s important to identify them.
- Volatility: it’s the speed of movement of the individual underlying, i.e. the percentage change of an instrument in relation to time. The more the variation is high in a short period of time, the more the volatility is high as well. Clearly, this concept is valid for the individual underlying as well as for an entire portfolio, which is given by the sum of them. You can guess how this, on the one hand, is an advantage, because it gives you the opportunity to earn large sums of money in a short time, but on the other is also a risk, because in the same way it puts you in a position to quickly lose those same money you could earn. As mentioned earlier, two instruments related positively could increase the overall volatility of your portfolio, thus increasing the risk of the unexpected.
- Drawdown: the loss of invested capital caused by the negative performance of a financial instrument or by all the financial instruments included in your portfolio. A non-diversified portfolio, or bad diversified and so unbalanced, might run into abrupt and sudden drawdowns just because of the simultaneity of the negative performance on the various assets.
The objectives of a diversified portfolio
The first goal of a diversified portfolio, then, becomes to break down the overall riskiness of the portfolio by controlling its volatility and the potential drawdowns.
Next, the second goal must be to look for the best investments that, with the same risk, will allow the best returns.
In other words, first of all we have to understand how to protect our investment, and ensure that it can survive in times of market turbulence. After that, we can look for the best opportunities to be included in the portfolio to try to maximize profit as much as possible, but without increasing the risks.
In recent decades a lot has been written about the correlations between the various assets (equities, bonds, indexes, commodities, currencies, etc.) and about how to include them in the portfolio. Some of these theories may be very useful, since with eToro you can also invest in stocks and commodities, or replicate the operations of those who do.
However, in a People-Based Portfolio, i.e. in a portfolio where the assets are not investment instruments, but people, or rather traders, the logic at the base is different.
We will deal with these very important topics in detail in the eToro Advanced Course, but let’s start by seeing here the main concepts.
Diversify your portfolio with eToro
Diversifying the portfolio when you invest in Social Trading is a slightly different concept, or rather “new”, given the young age of this investment practice.
The founding tenets of the diversification of a People-Based Portfolio are essentially 3. Let’s see them together.
– Diversifing the trading style
Investing with Copy Trading means to replicate the transactions of other traders. Having thousands of them to choose from, it becomes useful thinking about their operating style, the way they operate, the strategies and instruments they use, in order to diversify the choice of traders to be replicated even by these factors.
In the Social Trading guide we have dedicated a lesson to the main categories of traders you can find in the companies of this sector.
Given the fact that there is not one identical to another, and many times a trader is actually a mix of two categories, the most important thing not to overlook is always the control of risks and the portfolio protection.
This means that, beyond his operating style, a trader should always observe certain logic that makes him reliable for an investment. If it’s down your ally or not, and is compatible and useful to be included in your portfolio, you’ll understand in the second phase.
– Diversifing the underlyings
Another important factor of diversification is given by the underlyings.
Not all the Social Trading companies offer the possibility of implementing this type of diversification. With ZuluTrade you can only trade on Forex, and in that case you can only diversify the types of currency pairs. For example, you can diversify by choosing specialized trader on currencies like sterling or yen in order to not be too unbalanced only on euro or dollar.
With eToro you can do the same, but also and above all, thanks to the CFDs, you can diversify on traders and investors who use completely different asset classes such as stocks, indexes and commodities. Plus, eToro is also one of the few with which you can actually get Dividends (here’s our eToro Dividends post to learn more) .
Being a Social Trader, or, in this case, rather a Copy Trader, your task will be to identify the investors experienced and capable in their respective asset classes, and allocate them in your portfolio as well.
Each trading strategy, no matter how good the trader is, suffers moments of negative variance caused by both the characteristics of the strategy and those of the underlying. Copying different investors who work with different strategies on different underlyings offers the possibility to exploit the winning moments of a strategy on a given market in compensation to more difficult market moments for strategies that work on other underlyings.
– Diversifing the leverage
Third and final main element of diversification in Social Trading is the financial leverage.
In this case we mean the leverage used to replicate the trading signals generated by the traders and investors included in your portfolio.
The first point to remember is that overdoing with leverage is never advisable, because it can cause major problems in the portfolio on both volatility and excessive drawdowns. So, even diversifying, you should never go beyond a certain limit.
Second, the leverage must be distributed according to the operating characteristics of the strategy of the trader, considering how much it is strong, constant and risky.
It’s not certain that a trader with a strategy somewhat aggressive, so potentially risky, should be dismissed out of hand. Within the bounds of common sense, the risk may be leveled with a lowering of the assigned leverage, in order to make it conform to the general parameters of the portfolio and not create imbalances.
You must always be very careful even with traders who seem very reliable, and do not ever overdo with the leverage. Although they have shown reliability, a sudden error or malfunction of the strategy, combined with a high leverage ratio, may cause great damage to the portfolio.
As you can probably gather, diversifying the leverage is definitely the most risky activity of the three, and this must be done with extreme caution and care, after studying in detail the characteristics of the trader and, even better, after you’ve tested him.
Anyway, even though the study and the deepening are fundamental, only a certain degree of direct experience can help to make optimal choices in this field.
However, experiencing with your eToro live account is definitely not advisable, which is why the eToro virtual portfolio becomes really important, because you can even simulate the actual movement of money and the degree of volatility, drawdown and the portfolio overall risk before you start.
Not only that, even when you’re investing in the real one, you can always use the eToro virtual portfolio to test variations or alternatives, and continue to study and improve your investment.
Having said that, we have concluded the basic course. You just have the last lesson.
eToro Live Account tutorial
We’ve showed you pretty much everything we know about eToro.
Now it’s your turn.
The first piece of advice we feel we can give you, before starting to invest real money, is to reread all this tutorial and our other content on eToro a second time at least.
Make sure you really undrestood how this platform works. Your money is at stake.
When you feel confident, you can move on to the last step: opening your eToro live account.
But before you leave us, tell us: what do you think about this tutorial?
Let us know in the comments!
eToro Tutorial Guide FAQs
Is eToro really that good?
eToro is a popular choice among traders thanks to the copy and social trading features offered, low commissions on stocks and other assets, and a broad range of assets that includes real cryptos, shares, and ETFs along with CFDs. The broker is also well-regulated worldwide.
How can I make money fast on eToro?
There is no way to make fast money with eToro or any other broker. Practice, patience, and risk management are most important. Between 74-89% of retail investors lose money when trading. Most of the remaining traders also do not earn huge amounts.
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. 79% 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. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.
Cryptoasset investing is unregulated in some EU countries. No consumer protection. Tax on profits may apply.
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.
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