eToro Social Trading and How to Select Best Forex Traders
eToro is the largest social trading platform with millions of registered traders.
Social Trading is like the Facebook of forex trading. It enables traders to interact, copy and share trading ideas and strategies amongst themselves. Watch the short video below to find out what eToro is all about.
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eToro is particularly useful to traders who are tired of losing money when trading on their own. As an unskilled trader you can automatically copy trades of more experienced and successful traders.
The question is how to go about searching and unearthing traders who will steadily grow your account without unnecessarily risking your capital.
With eToro having 4,5 million registered traders, finding safe but profitable traders can be a daunting task, especially when you don't know what you're doing.
The purpose of this post is to explain how the most successful eToro investors go about selecting profitable but safe eToro top traders. By profitable I don't mean a profit of 20% or 100% per annum, realistically, you should expect about 20% or more per annum.
Just in case you are new to forex trading, let me tell you or remind you about the dangers and the risky nature of forex trading.
Dangers of Forex Trading
Forex trading is a risky business. I consider forex trading risk to be on the same level as that of gambling at a Casino, or investing in a pyramid or Ponzi scheme.
However, with the right knowledge and skill set, the risk of losing money in forex trading can be reduced to reasonable levels.
eToro Social Trading
I don’t know what it takes to succeed in forex trading, but I imagine it includes being disciplined and dedicating a lot of time to learn and develop the requisite skill sets.
Many of us don’t have the time or discipline to master forex trading. This is where a social trading platform such as eToro copy trading comes in handy.
We can leverage skillsets of individuals who have been trading forex for years without directly paying anything.
I am not a forex trader myself, so my opinions about forex trading are derived from what I have read the over internet and my personal investment in few social trading platforms.
I found eToro to be very easy to use. eToro has performance indicators and filters that make it easy to select a trader who will serve you well.
Many people who have experimented with forex trading have not been successful. Mainly because it is unbelievably hard to consistently generates substantial profits trading forex. Which is why it makes sense to try out social trading using the eToro platform to select the best traders.
Before I expound on the trader selection process, let me explain how to get started with eToro social trading.
How to Get Started with eToro Social Trading
To get started with eToro, you must have created an account first at the registration page as it can be seen below.
After populating your details and clicking ‘Join Now,' you will be taken directly to eToro social trading platform as shown below.
eToro will automatically take you through a quick tutorial on how to start trading with the virtual(demo account) funds. I suggest you complete the 60 seconds tutorial, but it is really up to you whether to go through with it or not.
The platform has a dashboard panel with all the functionalities on the left hand side of the screen.
You can immediately start trading in eToro with virtual money, which is useful as it allows you to understand how eToro works and safely practise without risking your cash.
Once you understand the system and know how copy traders and who to copy, you will be free to deposit cash into your eToro account. EToro accepts most payment types including skrill, paypal, credit card, direct wire transfer etc...
Bear in mind that you won't be able to start trading until you have supplied your KYC (Know-Your- Customer) documents, which basically means you must send a copy of your identity document and a copy of proof of residence.
How to Copy Top Performing Traders
Most of most traders join eToro because they want to copy other people’s trades, They’re interested in the “Copy People” functionality area. So click the "Copy People" text link on the dashboard panel on your left. A list of top traders with the following subheading will be shown:
- Top Investors
- Most Copied
- Lower Risk Score
- Medium Risk Score
To copy any of the top traders, ensure you have your account set to a virtual trading account (make sure ‘real’ account is selected on the side).
To copy trades of the Most Copied trader follow the steps below:
- Click the name of the trader you want to copy, in this case, the trader with most copiers.
- The profile page of the trader will open up. Click the "Copy" button on top of the trader's profile
- The copy dialog box will open up. Type in the amount of money you want to allocate this trader. If you have $1000 in your account and want to copy a total of 5 traders, then you can allocate $200 to each trader.
- Allocate the stop loss percentage associated with this trader. The stop loss can be 5 to 95 percent of the amount allocated to the trader. I recommend that you set the stop loss at maximum 95%.
- Check the tick box if current open positions of the trader are in the red. Uncheck the tick box if the current open positions of the trader are in the green.
- Proceed and click the 'Copy' button to finally automatically copy the trades of this trader.
- Then a confirmation box will open up, indicating that you have successfully copied this trader.
The video below explains the copying process in more details. Watch it if you're still not sure how the process works.
As you can see, it is simple and straight forward to copy a trader. But the question is how do you know if you have copied the right traders? To copy a trader who is right for you, you have to make an educated choice.
All eToro trader profiles have historical data and performance statistics which enable savvy clients to make informed and educated decisions in terms of which traders to select. Important performance statistics to examine when selecting a trader to copy includes:
- How long the trader has been trading? Look for traders who have been with eToro for at least 1 year. The trader must have a return of least 10% per annum. Avoid traders with extremely high returns as they tend to be high risk as well.
- Average monthly risk score is very important, it tells you about the traders risk profile as assessed by eToro's system. to be safe, go for a traders with a low risk score of between 1 and 5.
- Maximum drawdown is the measure of the largest decline of the value of the portfolio in percentage form. Avoid traders with high maximum drawdowns. Go for less risky traders with a maximum daily drawdown of 8%, and the maximum weekly drawdown of 16%.
- Another important factor is the asset allocations under 'Trading.' This parameter enables you to diversify your set of traders portfolio.
- Finally, you must have a look at the number of trades conducted per week. You want an active trader who will make your money work for you. So a trader must carry out at least 5 trades per week.
How To Unearth Top But Safe Traders with Search Filter
eToro has thousands of active traders operating online at any one time, it is not possible to check the profiles of all top traders manually.
This is where eToro's advanced search filter comes in handy. It narrows down thousands of top eToro traders to a handful of traders who can be manually and closely examined for final selection.
To access trader advanced search feature, click 'Copy People' on the left hand side dashboard panel. After clicking 'Copy People' you will see 'Advance Search' button at the right hand top corner of the page, click the button.
The 'Advance Search' box with many trading parameters will be displayed as per the screen shots below.
What follows next is a description of each parameter and what values you should use to filter out relatively safe traders. My parameters are aimed at finding traders who will safely generate a return of at least 20% per annum. I know it is not a lot, but it is better than keeping money at your local bank account for almost no interest.
The aim of the chosen filter is to keep the risk of losing money to an absolute minimum while making small but consistent profits over a long period of time. Which is better than making a lot of money, and then losing it again.
A. Time Period (12 months)
Time period refers to the trading experience in eToro. The longer the time period the better as it flushes out traders who have been profiteering through sheer luck. A period of 12 months is acceptable, but the longer the trading period, the better.
B. status (Tick both verified and investor's people)
You must be verified prior to trading on eToro. Under status tick both 'verified' and 'popular investor.' Verified simply means a person has provided kyc documents. A popular investor is a trader who is getting paid for having people follow him or her. Selecting 'Popular Investor' will filter out all traders who are new, not trading professionally, or who do not have any copiers.
C. Country (Everywhere)
The origin of the country really does matter unless you want make sure your accounts traders 24 hours a day by selecting countries from each of the 3 trading zones: Asian, European and American. So if you want to trade around the clock, search for traders from different locations. But for now, you should select 'Everywhere' option.
D. Name and Picture (Tick both 'Name' and 'Picture')
This a personal preference. What I have not about this parameter is that once you selected 'investor profile' above, whether you tick name and picture option or not, it does not really make any difference to the search results. Tick both 'Name' and 'Picture.'
E. Copiers (Leave Blank)
If you believe the crowd is always right, then you'll want to select a trader with many followers. I personally do not believe in crowd mentality, so I don't attach too much weight to this parameter. I will leave this one blank. I will considers it once I have reduced my traders selection to a few individuals. Use this filter only when you are happy with the trader's risk and performance statistics. Leave blank.
F. Copiers Change (Leave Blank)
Copiers change represent the percentage change in the number of people copying a traders over the past 7 days. I don't think this stat is important because we are looking long term, not short term. Leave this field blank.
G. Copy AUM (Leave Blank)
Copy AUM is the total amount of money allocated to a particular trader by investors. I treat this the same way as I treat number of copiers. Leave it blank for now and look at it later when making final selections.
H. Return (10% - maximum)
Return refers to the annual profit in percentage form. I expect a traders to make profit of at least 10% per annum. It is not advisable to go for extremely high profits, say 60% minimum per annum. Higher profits imply higher risk of losing money on your side. Note that if you chose a 'Time Period' of 3 years, then the return should be 30% and not 10%. If you chose a 2 years time period, then return should be 20%.
I. Profitable Months (>58%)
If you are looking for long term profitability, it is better to look for a traders who have consistent (almost the same) results from month to month, though there would be unprofitable months. Out of a total of 12 months, I expect a trader to have at least 7 profitable months: 7/12 = 58%.
J. Profitable Trades (Blank)
Profitable trades refers to the number of winning trades divided by the total trades undertaken. So we want profitable trades to be over 50%. Unfortunately, most trading experts think that this parameters is not useful at all because some traders leave position open for a long time to avoid closing in a loss. Also, the magnitude of a losses or wins plays huge role in determining the overall profitability, and not necessarily the number of winning or losing trades. Leave this field blank.
K. Risk Score (1-5)
Risk score is an indication of risk traders take based on industry risk assessment model on a scale of 1 to 10. A trader's risk vary from month to month depending on the traders risk management. A score of 1 means a trader is extremely cautious when trading and therefore is a safe trader. A score of 10 means a trader is reckless and is likely to blow your account. Select a risk score between 1 and 5.
L. Daily Drawdown (<8%)
Daily drawndown is the maximum loss the trader's account equity suffered in a single day over the period in question. This parameter tells us how seriously the trader takes risk management. If a trader has a history of high maximum drawdown, then he's likely to put your capital at risk. Set this parameter at less than 8%.
M. Weekly Drawdown (<16%)
Weekly drawdown is the maximum cumulative reduction in capital measured weekly over a specified period. Because this drawdown is calculated by adding daily drawdown over a period of seven days, we should allow for a higher drawdown - set the maximum weekly drawdown at 16%.
N. Allocation (Blank)
Allocation refers to the financial products you prefer trading in. It can be currencies, oil, stocks etc... or combination there of. This important if you want to diversify your portfolio. But you can leave it blank for, you will return to it later when you finalising your selected traders.
O. Average Trade Size (<10%)
Average trade size refers to the percentage size of the trader's account equity invested in a single trade. The higher the trade size, the higher the risk taken by the trader. You want this figure to be as low as possible to manage risk. Look for traders who risk a small percentage of their trades. In other words look for a trader with good risk management techiniques. The exact percentage to select will depend on asset allocation (Stocks, currency, oil etc...) and where the trade is short term or long term. Set this field to 10%.
P. Exposure (Blank)
Exposure is the total market value of all your trades that are open in relation to your account equity. The actual percentage value to be assigned depends on the asset class allocation. If a trader is trading forex only, then you don't want the exposure to be as low as possible to minimise potential losses.. But since we want to trade across all allocation classes, we will leave this blank.
Q. Active Weeks (Blank)
Active weeks means just that; how much time a trader spend trading. I prefer to control this one with number of trade per week as shown below. Leave this one blank.
R. Trades (>5 trades per week)
This refers to the number of trades a traders open per week. Because I am looking for an active full time trader, I will set it at minimum 5 trades per to maximum possible.
Once you have completed filling in relevant parameters of the dialog, the box should look like this as indicated below. To get results, simply close the box by clicking the X at the top corner of the box.
These parameters were set to pick traders who have been trading profitably and safely in the past. But there is not guarantee that they will all maintain their historical track record in future. Which is why this strategy only works if you copy a minimum of 5 top traders so that if one trader blunders, others can come in and make up for his or her losses.
The results page will show a number of traders who satisfy your specific requirements. If the results have too many or too few traders, then you should modify the search filter by loosening or tightening parameters which are important or less important to you. In the example above, 29 search results were returned, which I am comfortable examining individually.
You can further narrow down return results by doing any of the following to the filter: reduce the daily maximum drawdown to 5%, increase results duration to 2 years, or increase number of copiers required to a minimum, say 100; increase annual return profit from 10% to 20%.
For example, when I reduced the 'profitable months' percentage from 58% to 50%, additional 3 traders were added to the search results, including sameerah786 who happen to be an excellent trader with 981 copiers.
Once you return results with a reasonable number (e.g. 20 or 60) of traders, of which you can comfortably look at individually, proceed to manually review each trader.
Click the first trader of interest to open his or her profile, paying attention to critical areas I listed below:
1. Under the stats tab, check traders historical performance. Check if you are happy with what you see in the historical monthly performance.
2. Check account allocations in order to diversity your invest as suggested experts in the field. However, personally, I prefer currency traders only.
3. Under 'Portfolio' tab check if there's any order open and for how long by drilling down into current trades. You don't want a trader with orders that have been open for a long time (3 weeks), especially when currency is involved. If open orders are in the red, then you tick copy existing order when copy the trader.
4. Check the chart and see how it's trend looks like. Ideally, the chart trend should show a steady increase.
5. Finally, check the trader's popularity i.e. number people copying the trader. If you are with a trader's performance statistics and the trader happens to be popular (over 100 copiers) as well, then it simply confirms that you have made the right decision.
What I detailed in this post is the basic information you need to select the best and safest eToro traders. Remember that eToro social trading is not a get rich quick scheme. It is a safe social trading platform provided you know what you're doing or follow steps outlined in this blog post.
Ideally, you should create an account and trade with virtual money to understand the system first before risking your real cash.
Whether you are new to forex trading or have been around the block but losing money, then eToro is a safe social trading platform provided you know what you're doing or follow the steps I outline above to unearth safe traders. You must select a minimum of 5 traders, you can go up to 20 traders if you can afford it.
Important Tips on eToro Trading
I want to close off this blog post with a few trading tips which will increase your chances of making profit from eToro social trading platform.
- Diversify your portfolio, in other words include a combination of people who trade in currencies, oil, stocks and CFD's
- Risk score, daily drawdowns and eToro trading experience are important parameters in selecting a safe trader. Do not compromise on these 3 factors.
- Once you select traders, do not change them willy nilly. Stick with your traders for a least a few months before feeling the need to change them.
- Preference should be to a trader who specialises in 1 or 2 instruments, say a few currencies only or stocks or oil, not a trader who is a jack of all trades.
- Avoid currency traders who have positions opened for a long time (weeks or months).
- Do not manually trade your countries currency because you think you can predict it's movement based on domestic economic or political situations. Do not manually close a traders copied positions.
- Copy a new traders open positions only if they're in the red.
- Set the stop loss of every copied trader to 95%.
Disclaimer - All trading involves risk. Only risk capital you’re prepared to lose.