eToro Review & Essential Guide For Dummies

02/09/2019

Estimated Reading Time: 20 minutes

eToro Review & Essential Guide For Dummies – Introduction 

Why Do We Use eToro To Earn Extra Money?

Our site intends to provide you with the smart ways to make Extra Income. As a part of it, we consider Passive Income By Trading. Why? Because the newbie traders generate extremely high loss rate – see the hash reality in numbers

Thus, we use 3 passive trading methods as the most practical & safest ways to succeed in Forex Trading & some other Financial Tradings. eToro is a leader of the Copy Trading (Social Trading) industry, which is one of our 3 methods.

Unlike some of the advantage plays that guarantee profits based on the mathematical edge, eToro social trading is neither risk-free nor guaranteed profits. However, copying the experienced experts’ trading automatically will substantially improve your profits because professional / institutional traders’ average winning rate is significantly higher than retail / individual traders. 

Opening up eToro account doesn’t cost you anything and eToro Fees to copy experts’ trading are free, so go through our guide and consider trying it, probably with demo account without using your own money first.  

eToro Review 

eToro Snapshot

eToro is Social / Copy Trading Platform founded by the brothers Yoni Assia & Ronen Assia together with David Ring in 2007 in Tel-Aviv, Israel. They started as a simple on-line FX broker but expanded its product offering by introducing a professional trader’s application ExpertMode and a web based trading platform WebTrader in 2008. The Open Book social investment network was launched in July 2010, with the “Copy Trader” feature released in May 2011. The Copy Trader enables users to view, follow and copy the network’s top traders real-time, as such allows you to create a so-called people-based portfolio. Thanks to the $162 million funding in total, it expanded the business smoothly establishing research and development office in Israel and additional offices in UK, Cyprus, the US and Australia. eToro started accepting US players in 2018 and currently have over 10 million users in over 170 countries – see how eToro is Licensed & Regulated.

If you want to check eToro’s registration status in each regulator, go CYSEC (Cyprus) & FCA (UK) etc., just for your reference. 

eToro has become the market leader in Social Trading industry and the arch rival is ZuluTrade (see our full review & guide).  

Strength & Weakness

Strength

☑ Simple & Easy Use of Interface: The information made available in Trading & Investing Platform is kept basic, making it easy for newbies to use. There are a few simple tools to help you find the Traders or Professional Investors you want to follow and copy.

☑ Convenience:  Because eToro operates both social investment network and broker, you can manage everything through the same interface (no need to sign up with a different broker).

☑ Low Slippage: Thanks to the above integration between social trading network and broker, when you automatically copy trades from other traders, you’ll notice that in most cases (>90%) there’s no slippage. Only on very few occasions does the price slightly differ though normally that would only be about 1 pip difference for Forex trades. Hence with eToro, unlike with some other social trading networks, slippage isn’t really an issue, the trade copy execution time should be quicker and more reliable (since it’s all within 1 broker and not between connecting brokers).

☑ Quality Tools for Copy Trading: CopyPortfolios: One innovative instrument is CopyPortfolios, where you can copy trade from eToro to a single fund. CopyPortfolios assist bridge the gap for investors who want to passively use eToro as they are able to build a portfolio completely based on one or more CopyPortfolios. On the other side, CopyPortfolios can also be used by self-directed traders to diversify their own business, making it possibly beneficial to all eToro customers. Other characteristics like the Editors ‘ Choice and Popular Investor, besides CopyPortfolios, serve as extra ways eToro tries to discover you the best traders to copy and/or follow. With platform configurations, eToro provides the capacity to set the default trading size, leverage choice, and even the default stop and limit levels per traded tool.

☑ Expert Trader Verification: Traders should displays real name / photo in profile (verified by eToro), which adds some level of trust that you’re following real people.

☑ Free & Fully Functional Demo Account: eToro allows you to trade with a fully functioning demo account free. You can follow Traders using virtual money to evaluate and review their performance in $ gain terms. This will give you a more realistic view of what you can expect when you finally allocate the real money, say $1000 to a certain Trader.

☑ Wide Trading Choices: In addition to Forex Trading, you can also trade on major indices, commodities (oil, gold and silver) via CFD, and impressive range of Crypto as below;

Weakness

☠ Limited Information of Traders: Given the focus on novice investors, you’re unable to view the full history of all trading details of each trader, calculation is confusing and lack of transparency. Thus very large % gain numbers may set some wrong expectations.

☠ Deviation: Actual results in your account will often not totally match the ones displayed for the trader you copy in the eToro interface, mainly because they often use their commission payments to add to their balance at the end of each month, which could be included in return calculation.

☠ High Spread: The eToro spreads on each trade are arguably slightly higher than most brokers (e.g. 3 pips for EURUSD).

☠ Rollover Fee: The overnight rollover fees (for any trades positions left open overnight and over the weekend) charged by eToro are also a bit higher than most brokers. You need to watch this closely since most of the traders have a tendency to keep positions open for weeks or months, meaning over time these rollover fees will add up if open trades aren’t managed carefully.

Can We Really Make Money?

MIT & eToro have been doing a joint research. MIT Professor Alex “Sandy” Pentland explains it in the interview by Deloitte. 

The traders who had the right balance and diversity of ideas in their network—meaning that their social learning was neither too sparse nor too dense—had a return on investment that was 30% higher than the returns of both the isolated traders and those in the herd.

” HBR (Harvard Business Review), which includes the below video

Let me also excerpt some interesting findings from MIT Media Lab report as follows;

Working with the eToro investment network, Altshuler distributed $20 trading coupons to 500 active financial traders out of the more than two million eToro members. Matches between traders and recommendations were based on an innovative algorithm designed to optimize information flow within the network. Even this small number of coupons was enough to move the entire network away from dangerously high levels of groupthink, and as a consequence, the entire trading community–not just the 500 coupon users–saw a significant increase to their rate of return. The increase in return was more than 10 percent compared to those who traded without guidance from the social network, and 4 percent higher than those who only followed the highest-performing gurus. “This study demonstrates how an efficient collaborative trading community can be formed by carefully balancing the complex mixture of ‘trend setters’ and ‘bellwethers’ who govern the behavior of the crowd,” says Altshuler.” For more details about the algorithm developed by MIT Media Lab. Anyhow, it proved copy trading results in at least 6% better even without such algorithm. Then, can we expect to gain exactly the same % as the popular traders in OpenBook if we copy them? Well, firstly, unlike some other social trading networks that use outside broker, slippage does not seem to be a big issue.  Means you can expect the same trading as the trader you copy in almost all trades. However, trader’s result (especially the popular traders’) could be distorted because they automatically get more capital comes from the bonuses they received from eToro for every investor who copies them – reportedly eToro pays $10 for each copier who actually invested. All in all the best strategy is testing by yourself using Free Demo Account with Virtual Money as explained later. Let me introduce the indicative numbers I found in the eToro forum as below; First of all, the financial markets are risky and unpredictable and there is no such thing as a guaranteed profit. Secondly, even the best traders can’t maintain exactly the same level of gains week by week, it all depends on the opportunities the market offers at a specific point in time. Sometimes they’ll have large gains, sometimes small ones and sometimes they’ll have to absorb losses. Thirdly different traders have different trading styles – some take more risks, which means bigger gains but sometimes also bigger losses, and some play it safe which usually means smaller gains but also less chance of losses. It also depends on how many trades they open per day, if they’re scalping or making long term investments, what their profit goals are for each trade etc. Having said that, here are some figures that’ll help you calculate the gains you can expect when copying a successful trader with good money management and low risk:

• 1) The average trade of such a trader would take up 3-4% of their total account.
• 2) They would use low to medium leverage, let’s say x25-50 on average.
• 3) Their average take profit would be 30%
• 4) They would open approximately 20 trades per week.

Keeping in mind that these are just estimated figures, not based on anyone in particular, we can calculate that if you allot $50 to copy this imaginary trader you would invest on average $1.5 per trade, with a x50 leverage that makes 75 currency units, and a 30% profit amounts to 0.45 cents. With 20 trades per week that comes out to $9 for the first week. Calculate some losses into that and you’ll get around $8. The next week you have to make the same calculation starting with $58 as your copy amount. Again, these figures are purely theoretical. What I would suggest, to get a more substantiated estimate, is to open an eToro demo account and try copying with just $50 of your virtual money. This way you don’t risk any real money and you can see how much profit you’re making per week. I hope this helps and I wish you happy trading! Abby, eToro Team MIT Media Lab report 

I think when it comes to the average, there must be a “survivor-ship bias“, means the traders who failed are eliminated in the list and only successful traders are remained in the list which are the basis of entire universe of traders. Having said the above numbers could be pretty optimistic and MIT Media Lab result must be much more realistic. Nevertheless, eToro’s system is really worth trying.

eToro continued a study with MIT led by Dr. Altshuler and Professor Sandy Pentland aiming at developing a “sustainable trading mechanism”. And a small preview of what we can expect with MIT’s “Daily Tip” technology:,

4 Quick Steps To Avoid Mistakes

Broker Account Summary

Firstly let me summarize a few technical facts of eToro Web Trader for you to make a brief look at its broker function as follows;

• Broker Type: Market Maker (No Dealing Desk) (STP)
• Traders From USA: Yes / Islamic Account:Yes / Free Demo Account: Yes
• Trading Platforms & Tools: Webbased Own Proprietary Platforms (both PC & Mobile) / CopyPortfolios 
• Account Currencies: USD / EUR / GBP
• Minimum Deposit: $200 / Minimum lot size: 0.1 lot / Minimum Trade Size: 10000
• Leverage: Maximum 400:1
• Spreads (pips): EUR/USD3, GBP/USD4,  USD/JPY2
• Payment options: Credit & debit cards, Neteller, PayPal, Skrill, Wiretransfer etc.
• Fee & Commissions: Margin Interest:No / Depositing Fees:No / Withdrawal Fees:$25
• Scalping: No / Hedging:Yes 
• Free Demo Account: Yes (up to $10,000)
• Trading Detail Tools: Stop Order:Yes / Limit Order:Yes / Market Order:Yes / Trailing Stop Order:Yes / OCO Orders:Yes / One Click Trading:Yes / 24hr Trading:Yes / Charting Package:Yes / Trade off Charts:Yes / Streaming News Feed:Yes / Email Alerts:Yes / Mobile Alerts:Yes / Telephone Orders:Yes Personal Account Manager: Yes
• Supported Languages: Arabic, English, French, German, Italian, Russian, Spanish
• Customer Service By: Newsletter, Call Back, Phone, Chat, Email
• Customer Service Hours: 24/5

4 Quick Steps

The sign-up procedures are very straightforward and, only once you decide to invest with real money you are required to provided a copy of your passport/id card and proof of residence.

1) Visit eToro Site to Create Your Free Account

No brainer, just fill-in your “Name”, “User Name”, “Password”, “e-mail address” & “Phone Number”.

2) Select Trader To Make Copy Trading

Suggest you watch the video which explains most of all you need to know for starting up;

At this stage, the most important video section is the process of selecting the trader to copy and how to copy (see later for details). 

3) Practice with Virtual Account

It is paramountly important that Never Ever Start Trading with Real Money. eToro offers an free practice account with access to all the same features as their ‘real-money’ accounts (including the CopyTrader functionality). In order to use Virtual account, select it at the left top box as below;

4) Risk Management Review

Review & remember the 2 basic risk managements. First risk management is setting your strategy & target which I personally believe should be conservative. People tend to be attracted by the amazing growth.  If you expect to double your account in 1 month, then you have to accept the risk of losing all your equity in that period as well. Be moderate & sustainable. Second risk management is the above 3). Never use your hard earning money from the start, use virtual money to test. Simply you invest $100 evenly in the traders you select (you may select 10 traders that would be $1,000 in total) and leave it for a few months to check the results or if you want to intervene do what you want. Remember, the virtual account performs exactly the same as real account, thus simulate what you plan to do with real money in future, so if you intend to invest only $500 then set $500 in demo account rather than $1,000.

The good thing of eToro regarding risk management is its automatic risk setting as;

•  you can assign a maximum of 20% of your equity to 1 Guru
• you can copy a maximum of 20 Gurus in your account

Also as the above screenshot indicates, you can control the Stop Loss for the trades you copy, so make the best use of its function by realizing your risk tolerance. You may want to see the Asset Management article related to eToro that also discuss risk tolerance.

Anyhow, once you invest your real money, suggest you check the progress at least once a week.

 

How To Find The Best Trader To Copy

In comparison with Zulu Trade, the Popular Investors data is unfortunately limited, especially for the maximum trading period accessible is 3 years. However, unlike Zulu Trade Signal Provider who can use demo account, eToro Traders need to trade their own real money and the fact that their commission are paid based on the consistency of their performance rather than simple profitable trading, which can obviously enhance the credibility of Popular Traders. Yet, all in all, given the lack of advanced filters like Gulu Trade and the little transparency of the return %, the best search seems to be finding relatively better Popular Traders and not use any return expectation based on the available statistics.

5 Specific Process To Choose Best & Safe Traders To Follow

To search the trader you want to copy, choose “Copy People” “Editor’s Choice” and filter what you want to see. One of the mos important criteria you need to check is Past Performance as long as possible. Never set short-term such as past month or past 3 months. At least 1 year, very minimum (eToro’s limitation is only going back to 2 previous year). 

1) Initial Filter 

I just set people from everywhere, who invest in Forex, and gained at least 10% during the Last 12 months and didn’t lose more than 5% in any week during this period. Then, the result shows;

You may want to see the trader with low risk approach (up to 3-4), modest return(up to 15%) and good number of followers (over 1,000),then, Olivier is an interesting candidate;

2) Past Performance – Stability

Go to the detail profile & trading performance of the selected Trader 

Stability is very important. The stat automatically shows the past 3 years (including this year) performance. Olivier is absolutely stable, no single negative month;

3) Risk Management – Max Draw Down

Given the above stable performance, his risk-management must be excellent, and yes it is proven by the number as;

In case, you want to check the trader’s ability further, you may also want to go through PAMM Investment Ultimate Guide – 7 Secrets To Find The Best Account

4) Trader’s Portfolio – Own Trading Ratio

You need to check if the trader’s portfolio is driven by own trading. If the majority of the trader’s portfolio comes from the copies of other traders, then it doesn’t reflect the trader’s own trading ability. Well, we can say creating a good portfolio is also a good ability, in this case, suggest you check the next 5) Copy Fund. Anyhow it’s better to confirm how the trader makes money. Olivier’s portfolio comes from 100% own trading;

5) Copy Fund – Best Use Of Fully Allocated Portfolio

If you appreciate the ability of creating the good portfolio said in the previous section, you may want to use the Copy Fund that is already assembled by eToro system How it works? Watach the below video;

 

Conclusions

In short, eToro offers good opportunities for even newbies to make decent profit passively. However, never ever be greedy. Empirically, the successful investor aims at sustainable & conservative growth with low risk. Just selecting the most popular traders does not seem to achieve that objective. You need to develop a well-organized Portfolio to diversify the risk, keep monitoring the progress and re-evaluate your allocations periodically. By doing so, you will expect steady extra passive income from it and it’s really worth trying.

 

Good Luck!!

Joshua Walker

Publisher – GEM (Global Extra Money)

 

PS
BTW, we GEM deal with 6 Advantage Play as follows;

For Full Index of Our Guides, Go; List Of Special Reports – All Information are Based On Our Intensive Research & Professional Analysis