Good Traders Trade. Great Traders Copy! How eToro Revolutionized Online Trading

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  • etoro9Since I receive many e-mails and comments asking about the best ways to break free from salary-dependency and making “big money,” I have decided to share with you some money making tools that I discovered in the last few months.

    As a financial writer, I am always on the lookout for both scams as well as honest, modern, interesting methods that people are using to make money in unconventional ways. When I stumbled upon a eToro and learned that some of its users were generating sums of more than $1500 per month, I decided to investigate further…

    First of all, let’s establish the most important concept in breaking free from the salary dependent, hand-to-mouth way of living: make your money work for you!

    As opposed to a salary, which you have to put in hours of physical and intellectual labor in order to produce, or a product which you must buy and then sell – money can passively work for you 24/7. More specifically, money invested in financial instruments, like stocks or bonds, are working day and night, making more money (hopefully) as we speak.

    As a financial writer, I’m very familiar with stock and bond trading. I myself have dabbled in day trading, but it proved to be a bit too commitment-heavy for me. Let’s be honest, to be a successful day-trader you need to be glued to a computer screen for all hours of the day in order to make decent profits.

    Regardless, I am always on the lookout for interesting “passive income” opportunities – ways for individuals to take some savings, invest, and multiply them with minimal intervention on my part. While perhaps better than storing money away in a savings account at your local bank, I soon learned that the return on investment (ROI) for the most safe and reliable stocks and mutual funds was still very low. While the associated risks were also low, the potential profits were simply not worthwhile: 5% per year, for example.

    Thanks to the digital revolution, almost anyone with a computer, anywhere in the world, can trade stocks, bonds, commodities or currencies and get a piece of the action.

    But despite the ease with which anyone can trade nowadays, the truth is that most people go into the market without the key knowledge that is required for making a profit: when to buy, when to sell.

    That’s why, when getting involved with any financial market, experience is invaluable. The financial markets are volatile and constantly fluctuating. War in the Middle East, a major bank going bankrupt, a new trade agreement between countries – all of these events affect the value of a market. An experienced trader will know how to predict and react to market-changing events, and how to stay profitable. And of course, the best kind of experience isn’t gained by reading a book, but by jumping into the market and trading in real-time. The top earning traders have been at it for years, through thick & thin.

    Then, a few months ago, a fellow financial journalist brought eToro to my attention.

    Why eToro is different

    While the average Joe has neither the knowledge, nor the years of experience needed for successful trading in the long term – he now has a new option: a social investment network.

    eToro is a social investment network that connects traders on its online platform. It’s similar to Facebook, only for traders and investors. A novice trader can open an eToro account with as little as $100 and begin trading immediately. eToro makes the learning process technically and visually super-simple and straightforward

    Buying and selling any financial instrument becomes as easy as one click – making the once esoteric financial markets totally accessible to anyone. There are millions of non-professionals trading in currencies, stocks and commodities these days on tons of different online platforms. What sets eToro apart is its unique, strategically valuable features like ‘eToro Open Book’ and ‘eToro Copy Trader’.

    When I first heard about online trading I was wary of the idea – having had previous bad experiences with stock day-trading. With eToro, however, online trading has become a breeze, even for relative novices like myself. To best understand how eToro has democratized trading the financial markets, check out the short 60 second video below:

     

    Neat isn’t it? Instead of wasting months on training and reading boring financial books, eToro allows you to copy the best of the best!

    It gives you the insider’s view on trades being made in real time. On eToro anyone is able to follow the best traders and earn money off of their knowledge and experience. This game-changing feature gives anyone, anywhere, the ability to make a profit in online trading without a day’s worth of education or training.

    Minimizing risk

    Any reasonable potential trader will now be wondering: which traders should I follow? How do I know I can trust their expertise? How do I minimize my risks? To answer this vital question, here are my top tips for using eToro to earn an extra passive income:

    eToro will allow you to copy up to five traders at any given time. You’d be wise to diversify your portfolio of trades as much as possible and take time to figure out which expert trader is making you the most money and minimize the losses that can occur if a trader performs badly.

    In general, minimizing risk is the #1 rule, even if it means earning smaller profits for a longer time.

    etoro6If you stick to low risk traders and diversify your portfolio across around 5 different expert traders, the chances of losing your money are very, very low. Perhaps you will not earn as much as you hoped for, or maybe you will even make a small loss, but if you follow the right traders, and keep your eyes on the ball, it is almost impossible to lose all of your investment.

    I quickly learned that I wanted to copy only expert trader’s low to medium risk portfolios with proven earning records. eToro provides all the statistics and analytics that make checking an expert trader’s history very easy.

    How to find the best traders to copy

    The easiest way to find traders to copy is by using the new search function with advanced filters. Just click on ‘People’ in the top menu and the default search screen will show up. Use the customizable search function to select some filters to sort expert traders by country, investment type, how much they earned or lost etc. or use the popular searches feature to check out the most popular combinations other copiers like yourself are using to find expert traders.

    When analyzing an expert trader to potentially copy/follow, focus on four things:

    etoro51. Trading History: A trader’s performance over the previous six months will give you a good sense of whether this trader has been steadily earning increasing profits without big losses or mistakes. You will be able to see which traders are gamblers who take risky bets and sometimes lose their shirts.

    A trader’s history also includes his or her most recent transactions. Be sure to copy traders who, on average, complete at least 30 trades per month.  Anything less points to a beginner or hobby trader, as opposed to someone serious about making money every day from their trading practice.

    Don’t eliminate a potential expert simply because of a few losing trades – it can happen to even the best traders. However, DO check that a trader knows how to lose properly, rather than leaving losing trades open for months instead of taking a loss.

    2. Risk: High ROI usually involves higher risk. Traders who are making 10% ROI on eToro are probably involved in very high-risk trades. You can choose to either take part or stay away from these types of trades. Make sure to check a trader’s portfolio allocation graphic to see how many trades he or she has made of varying risk.

    3. Authenticity: Make sure to copy only expert traders and not amateurs. eToro allows you (by clicking on the “Copied Traders” button) to see whether a particular trader makes his own transactions or copies yet another trader. The best experts are usually not copying anyone.

    4. Open Trades: You are able to view any given trader’s active trades. You should certainly avoid traders who keep month-old losing trades open, instead of closing them and taking a loss – it is usually a sign of irresponsible trading and a lack of expertise. On the other hand, many open trades that are current as of a few hours or days ago, are just fine.

    While the system might seem overwhelming at first – as you spend more time trading on eToro and learning through practice, you will become more adept at finding the best experts to imitate.

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    Getting Started

    Before you deposit, you can sign up for a practice account with $10,000 to trade with. That should help you get acquainted with the platform without risking a dime.

    Signing up to eToro and Open Book is absolutely free – no monthly or recurring fees. You will pay only small commissions on the real trades you make. Once you become an expert trader, you will also benefit from commissions based on the number of users copying you. The better an expert produces for others, the more money he or she makes. The business-model is beneficial all around, unlike many schemes that can be found online, which take advantage of users.

    Obviously you will need to deposit money into you eToro account in order to start trading with real money – as little as $50 to start out with. The site let’s you use credit/debit cards, PayPal, wire transfer and other popular payment methods.

    It’s good to know that the larger the amount you deposit, the more experts you’ll be able to copy. If you insist on depositing a minimum of $100, then you can only follow one expert for the time being (and this is a bit risky). Therefore I recommend you invest at least $500 in order to follow 5 different traders (thereby spreading your risk to 20% for each expert trader you find and then copy). The more diversified your portfolio of followed expert traders is, the less vulnerable you will be to any individual trader’s performance.

    It’s important to mention that eToro offers you bonus credit on initial deposits – the more you deposit the more you get!

    etoro7Also note that you can access eToro on any smartphone – Android or iOS – so you can update your portfolio whenever or wherever you are…

    Your first step as a novice trader should be to locate the experts you want to follow/copy. The bulk of your work on eToro, at least in the initial period, will be following your experts for at least an hour per week to see how they are performing and decide whether you’d like to switch and change your portfolio. You can easily access each expert’s history graph once a month.

    Even the best traders experience losses. You should become aware of when it’s time to close a failed transaction. Closely watch your experts and react to negative trends by un-following a poorly-performing expert. Don’t hesitate to shut down un-profitable/negative trades – successful trading is all about long term profits.

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    The importance of compounding

    Compounding is an essential concept when making financial investments like the ones in online trading.

    Most investors mistakenly opt for quicker, lower profits. Online trading will give you the best returns if you are ready to be patient, marry your portfolio and wait for bigger money. With the compounding method, you can keep monthly investments small: start trading with $200 and add an additional, similar sum every month. If you stay consistent, within a few months you could see potentially massive returns. With compounding doing all the work – you can leave “small” amounts of money in the system for longer periods of time and see great profits.

    If you trade with an initial sum of $200, earning 10% ROI every month – after five years your account will be worth over $60,0000!

    However, if you kept that same investment and added an extra $200 a month for five years with the same 10% monthly ROI – your final account balance would be worth more than $700,000. This is the magic of compounding, when accompanied by sound investing practices and a good dose of patience. A good long-term goal is to achieve 10% monthly yield with as little risk involved as possible. Those 10% profits every month, when left to earn more money, can become giant sums.

    Concluding remarks

    Welcome to the rare group of individuals taking advantage of the financial markets in today’s online, plugged in, digital economy. This is an opportunity to go beyond the previously limited options and break out of the salary-cycle.

    While you should not quit your job and pour all of your money into online trading tomorrow – you do have the opportunity to learn a new skill and make a decent amount of extra money, with minimal effort. There are no gimmicks here – online trading involves profits as well as risk.

    The best advice I can give you as my reader is to only invest what you are comfortable losing. Test the waters of online trading for a few months and see how it works for you. If and when you are earning a steady profit and you feel like you’ve gotten the gist of the business, invest a bit more.

    etoro3Remember that your main goal should not be hitting the mega jackpot, but instead NOT losing any money and beating the annual return that you would get if your money was simply sitting in your bank account. In other words: Be safe, be smart and don’t be greedy!

    There are a lot more features in eToro that I have not covered, but this article would quickly turn into a book if I covered everything. The bottom line is that there are no miracle formulas on how to make a decent return on your money. It is up to you to learn the basics of trading with eToro, by opening an account, depositing a few hundred dollars and practicing on your own.

    As a financial journalist, it is part of my job description to share interesting and beneficial information about the economy and new ways to make money. I wish you good luck in all your financial endeavors, including online trading, if you so choose.

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    * The information in this article is based on my dealings with eToro. Please note that I am now affiliated with them following my positive experiences and many reader recommendations. This does not affect any of the facts outlined in this review.

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    Sean William Murray

    Sean W. Murray is the founder of Rich-Logic, a lean and very mean financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of "Beating Wallstreet", Murray advises wealthy individuals on how to invest their money, as well as courses on behavioral finance at dozens of elite institutes. His articles on TheMoneyExpert give valuable insights into the world of stocks, binary options, forex and other investment vehicles.

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