What is eToro?
eToro is the leading online social trading platform with more than 6 million users registered to the site since they launched in 2007. The original idea was to make trading accessible for everyone by creating a user-friendly interface, making it easier for traders of all levels of experience to get involved.
The trading platform is also available on the eToro app on iOS and Android, so it's even possible to trade on the go, as long as there is an internet connection of course.
eToro has grown rapidly over the years, especially since the introduction of the CopyTrader feature which lets you copy the trades of other traders. This is an ideal feature for beginners as it allows you to get started with very little knowledge of trading.
More recently eToro introduced support for CFD trading cryptocurrencies, so rather than actually buying cryptocurrency you can speculate on whether they rise or fall in value.
How does eToro work?
eToro has thousands of assets available to trade within the "Trade Markets" tool. Here you can buy and sell stocks, commodities and currencies etc. by opening either non-leveraged positions or alternatively, by using CFD trading which allows you to buy fractional shares.
The easiest way to get started on eToro is copy someone else's trades using the CopyTrader or CopyFunds tools. If you are looking to invest a small amount then CopyTrader is more suitable, as CopyFunds has a minimum investment of $5,000.
You can get started with as little as $200 on CopyTrader, so this is the ideal place to start as a beginner. This is the minimum amount required per trader you copy, so bare that in mind if you were hoping to be able to split $200 across several traders.
CopyTrader is a simple idea and you don't need any real trading experience to get started. It's as easy as it sounds, you select the trader(s) that you want to copy, deposit the amount of money you want to invest and then you can instantly start copying their trades.
eToro sorts out the actual copying of trades for you automatically, so once you have chosen who to copy you can sit back and hopefully watch your investment grow. This of course depends on the whether the trader(s) you are copying are successful with their trading.
Although the trades are automatically copied, it is possible to close trades manually and return the funds back to your copy balance. This makes it flexible if perhaps you are not happy with one of the trades or if you want to cash some profit in early.
You can copy up to 100 traders at the same time but as we mentioned before, there is a minimum investment of $200 for each one.
The idea of CopyFunds is that rather than investing in a single trader, you can diversify by investing in several assets in the form of a fund, similar to a hedge fund.
The drawback is that you need a minimum of $5,000 to invest in CopyFunds, so it's not suitable for small-time investors.
There are portfolios readily available in the Market CopyFunds to invest in that are based around certain industries such as engineering, technology, gaming and cryptocurrency.
So for example, if you are interested in investing in the gaming industry you could look at investing in a fund that focuses on trading major assets in the industry, such as the InTheGame fund.
If you are looking to invest less than the minimum $5,000, you can still do a similar thing to this on CopyTrader by searching for traders that focus their trades within certain areas or industries.
Alternatively there is the Top Trader CopyFunds. These are comprised of the top traders on the network, sourced by eToro's own algorithm to find traders with the best proven track record.
So rather than investing in companies, the Top Trader funds are made up of actual traders and act similar to the portfolio of traders that you'd have on CopyTrader.
The advantage is, you don't have to do any of the searching and risk assessment of traders as eToro have already done it. On the downside, if higher risk investments are your thing then you are unlikely to find them here.
eToro Virtual Account
With the eToro virtual account, you get to try out the trading platform with $100,000 worth of "play money" so that you can get a feel of the software and learn how to use it before committing any real cash.
Think of it as a practice account where you can have a go at buying and selling stocks or perhaps try out CopyTrader. It all works as if you were using your own money and you can keep track of your virtual portfolio in the same way.
Before I invested in eToro as part of my own portfolio, I tried out the virtual account by allocating just over $50,000 of play money to copy 13 traders (oops... unlucky for some!).
It's been 12 months since then and my virtual investment has now made a profit of $6,526.67 which is a 12.06% increase. Considering I didn't put much research into the traders I was copying, it has worked out quite well!
Choosing the best people to copy on eToro
Choosing who to copy on eToro is made easy as you can see at a glance the traders that have made a good return over a set period of time.
There are tons of filters to choose from but to start with you can select where they are from, what markets they invest in and how much of a return they have made over a period of between one month to two years. You can then refine the search further to find exactly the type of traders you're looking for.
When I was going through the selection process to find traders to copy as part of my investment portfolio, I was looking specifically for low risk traders so I made sure the risk score was low. I also tweaked some of the filters so that I was only shown active traders with a consistent returns.
This narrowed down the list considerably and made it much easier to choose who to copy, rather than having a list of hundreds of people to look through.
The filters make it simple to find traders that suit your risk tolerance, whether you prefer low risk investments like me or if you prefer to take more of a gamble.
Clicking on a trader takes you to a page that shows a breakdown of their monthly profit/loss, performance graphs and more details on what they frequently trade and how often.
Does eToro really work?
Going by my experience using the virtual account, it would certainly seem so, but I am currently testing the platform out with real money in my investment portfolio to find out for sure.
As I am copying low risk traders, it's not going to make a ton of money overnight but it would be a safer long-term investment with more of a gradual and consistent return.