To copy or not to copy... That is the question.
Will is back this week with more advice about copying on Etoro.
Take it away Will.
To copy or not to copy... that is the question.
It is one of the hardest decisions faced by most of the investors on eToro.
Do I want to copy some one and who should I copy?
There are numerous statistics on eToro that can help you arrive at the conclusion of to copy or not to copy.
The first question and usually the least important is, Do I like this trader?
Most of the human race is very impulsive and many a time some one will start a copy, get nervous and close it, some times even in the red. Only to open it again a couple of days later.
The question you should really ask yourself is
‘Do I trust this trader?’
Trust takes time and I would suggest to all copiers to copy a trader first in the virtual portfolio for a while first. Everyone has good days and bad days, some of the best traders on eToro have gone through phases of a declining portfolio but then have capitalized on the way back up to make a very healthy profit.
Copying in the virtual portfolio for the long term gives you a more detailed picture of the person you want to trust with your money.
How long do I want to copy this person?
This in my personal opinion is one of the most crucial questions that you need to answer before opening a copy.
The statistics page is very helpful in this matter. However past performance is no indication of future results. Having said that there is a lot of very useful information on there that can help indicate what type of trader the person is.
If your not planning to copy for a year then I’d advise that you ignore the ‘LAST 12months’ stat. It is the most obvious and biggest stat that is on anyone’s page but a lot of things effect this and is calculated through a relatively complicated measurement of compounding interest and is effected by deposits and withdrawals.
The monthly performance is far more informative.
Most Popular investors recommend a minimum of copying them for 3 or 6 months and once you look at the statistics its clear to see why.
Each month is an isolated case, it is based on the value of the previous month at close and then it compounds the interest for each following month.
You copy someone at the beginning of January with $1000 (for this example I will ignore the spread), the person you are copying goes up in value by 10% by the end of the month.
At the beginning of February the $1100 is rolled over.
This month the person you are copying goes up in value another 10%.
The total value by the end of the month is now $1210 as the interest is compounded, and so on and so on. Bear in mind that it works the same going down in value.
The additional Stats should also be taken into consideration.
The average hold time and trades per week can indicate how long it could take to use up your funds if you don’t select ‘copy open trades’
Does the person trade in the same things I already trade in?
In trading diversity is key, it is never wise to put all your eggs in one basket. If you copy someone that deals just in the things you already trade in then you will be increasing your exposure to the same instruments (stocks currencies, etc.) Some times its good to copy some one that deals in things you would never have in your portfolio as it adds diversity to your portfolio and reduces the risk of sector corrections from hurting your investments too much.
How much risk do I want to take?
The risk score system is very helpful on eToro. It is based on a VaR system.
If you personally are a high risk trader and looking for a way to reduce your risk score finding some one to copy that has a lower risk score than you can help to reduce it.
Risk scores can and do change over time but stable investors might be just what your looking for.
(There is also another article on my website that goes in depth of the risk score ‘What number are you? eToro Risk Score Explained’)
Is there anything else I should know about?
Another article that I have written covers the basics of the copy system on eToro but it is more complicated than it first seems.
‘What is eToro CopyTrader? Part I’ goes a long way to explaining it though.
There is one more stat that you might be interested in before copying some one, and that is a history of their past trades.
This does not take into account any of the current open trades and the unrealized profit/loss so take it with a pinch of salt.
To find it when your on the profile page of the person you are considering to copy go to their portfolio tab and change from portfolio to history. You can also adjust the timeframe accordingly as well. There is the occasional bug in the system though that can skew any of the results in the system though, so keep a close eye out.
Does the person I want to copy communicate?
This is all down to personal preference. Some of the traders in the Popular Investor program barely make any posts at all others are diligent repliers and are very active in the community.
It’s to what ever suits you best, but I’ve always found that some one that will answer some questions and informative are usually easier to trust and invest in. They will usually guide their portfolios and give you peace of mind by laying out strategy updates and explaining potential losses and where they plan to make more returns.
Have any more questions about a specific trader?
The best thing to do is ask them. Bear in mind though that the more copiers some one has the longer the reply may take, or it may even get lost in the many other comments and notifications that hit the account.
If you want to ask me any questions about copying I find it easiest if you use the @willscuba in eToro but even I have to occasionally sleep but I’m around most of the time.
One final suggestion, once you have made a copy of someone I would see it out for a
month at least, that way you can get a more defined image of what techniques the person uses. Also the longer term trades will come into better focus as they become green.
Happy copying out there.
You can click on the picture of Will's stats to go directly to his Etoro Profile and please visit Will's Website.