Thinking of joining eToro? Then read this first – it just might save you a load of money

23 Jan
2015

etoro

A while back I happened to catch a BBC documentary called “Traders: Millions by the Minute“. It showed how people were able to trade from home and followed a few key people as they made and lost money.

I’d always be interested in owning shares and possibly dabbling in Forex trading, but the former was prohibitively expensive and the latter mind-bogglingly complex. However, one of the people on the show was using a website that allowed you to copy other people’s trades with whatever money you were able to afford.

This website was eToro.

I think I should take a few moments to put down in writing what I’ve learned in the last few months so that new users can avoid the mistakes everyone seems to make (myself included).

Rule 1: Get Free Money

If you have a friend on eToro already get them to send them their affiliate link. When you join up with that link and deposit a minimum of $100, eToro will give you $50 and your friend $100 of eToro credits in your account. Although you can’t withdraw eToro credits you use them as part of your investment portfolio and they never expire.

At first I thought that sucked, but the more you play with eToro the more you realise that you are always going to keep a few hundred in there even if you had to withdraw the rest. So grab your money while you can.

If you don’t have a link, please feel free to use my link here, then we’ll both be better off. But don’t join up without a link: you’d just be throwing money away.

Rule 2: Use Your Practice Account

Every account on eToro has a practice account with $100,000 in it. Use this to practice before you throw your money around. Get used to the markets’ peaks and troughs, and try and work on a strategy.

Rule 3: If you don’t have much cash, copy other traders or deal in stocks only

If you start off with only a little cash you’re best off dealing only in shares or copying traders. The reason for this is leverage, risk and money management.

If you deal in shares, the likelihood is that the price will vary very little over the course of a day. You can buy $10 worth of shares in Apple and leave it. You will pretty much always have at least some money when you go back to it.

If you put that $10 on currencies, the minimum leverage you can use is x100. That means that once the market moves 100 pips in the wrong direction, you will have lost all your money. 100% of your money.

You could try and use less of your funds, for example $2.50, but to place a trade for $2.50 you will need to use a leverage of x400. Using this leverage the market can move by only 30 pips and your investment is gone.

Of course, it could go the right way and you will have doubled your money, but I’ve seen many times in the past a flex of 100 pips one way before a switch of 150 pips the other way within 5 minutes of each other.

Profitable traders tend to use much lower leverage, such as x10, x25 or x50, but doing so requires less risk but more capital. For example a trade at x10 leverage requires a minimum investment of $100.

Luckily, though, eToro let you copy traders and this means you copy every one of their traders proportionally. Say you invest $100 in copying a trader and they have $1000 dollars in their account. When they place a $100 trade, your account will trade a $10 trade and will copy their leverage, too, meaning this is the only way to get a small fiscal amount at a low leverage.

I strongly recommend following people, at least until you know what you are doing and have learnt from them.

Rule 4: Follow the Right People For You

I could tell you who I think are the right traders, but they’re good for me and me alone. I have, at the time of writing, chosen 3 traders to copy who all bring something unique to the table:

1. @Dluginacci – trader from Ireland. Brilliantly disciplined. At the end of the day he shuts down trades regardless of where they are. You will often see trades that are cut short before they make a profit.

2. @MRoberts – an astro-physicist from the UK who is bright as a button. When he saw a collection of trades on the EURUSD pair go the wrong way, he piled in with a massive trade the other way, waited ’til it covered the current losses of the other trades, then shut them down.

3. @Wintrader999 – Another disciplined trader. From Germany, extremely low risk, but good return.

You may want traders that are really low risk, returning 5% per month consistently. You might want to copy traders who only deal in indices, or commodities, or shares. You must choose the traders that are right for you. Luckily, eToro have made a tool so you can search for just that.

Rule 5: Don’t Copy Traders’ Trades

Unless you’re copying the traders’ leverage also, then this is a really big no-no.

I started by copying traders trades on a higher leverage – so when they placed a 2% equity investment at x50 leverage, I would open a 1% equity investment at x400. To begin with, my luck held, but this system is disaster prone. Sooner or later a spike is going to come that will wipe you out.

The traders know what they’re doing. You don’t. They might close a trade off before it reaches its SL and your trade will sit and lose all its profits and worse.

Rule 6: If you copy someone, make sure you know what their open trade situation is

Only leave the box ticked ‘copy all open trades’ ticked if all of their open trades are in red. Don’t know if they are? Then check out their page. This page (annoyingly) can’t be seen on mobile or in the app. So you have to choose from the menu tab ‘desktop version’ then navigate to their page and click ‘portfolio’ > ‘open trades’.

If in doubt, leave it out

Rule 7: think about investing in shares

Shares are (usually) pretty safe. They generally don’t lose you all of your invested money overnight.

eToro don’t have all shares, by a long, long way, but they have a lot. Invest in shares you think will make money over the course of a year, not over a month, a week, a day or an hour.

Remember: you can’t short shares and shares are only bought one (sometimes twice) per day, so plan your purchase carefully.

Rule 8: Only invest what you can afford to lose

This is the biggest rule. Say you lost all your investment tomorrow. You’d be sad, but would you be homeless, would it affect your standard of living? If the answer is yes, then do not invest this money. You can lose it in an instant.

Last week, the SNB cut interest rates and stopped supporting the Euro at 1.2, which meant that the USD/CHF rate plummeted. There was no liquidity in the market, so stop losses were not hit and people ended up losing $1,000 on $40 trades.

Play it safe and you’ll win.

Rule 9: Give it time and you’ll be fine

If you’re sticking to the rules above and you have lost money in the first week or first month, then give it time. Are you sure the traders you’re copying are worth their salt? If you are (and other people are) then let everything mature.

Investing isn’t a race. It’s more like compound interest. Say you made 2% every day. An increase of 2% is 1.02:

1.02 to the power of 5 (one week) is an increase of 10.4%

1.02 to the power of 20 (~one month) is an increase of 48.6%

1.02 to the power of 240 (~one year without public holidays) is an increase of 11,000 times your investment. Now, this rarely happens. People take out money, get edgier / more cautious as the stakes increase, but even if you return 1% every day, you would, in theory, have 9x your initial investment. 0.5% = 2.3x

So remember to bank profits and don’t worry if you missed the opportunity – the market is always going up and always going down. There’s always a way to make your money.

If you get flustered, you’ll lose the lot.

Rule 10: eToro isn’t magic

eToro isn’t magic. It can’t magic money for you, but if stick to the rules above and put in a little work then the chances are that you will double your money in 6-12 months.

 

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