eToro Review – Our Opinion

eToro ReviewPlease note that while our review of eToro was first published in 2012, we regularly update it based on the introduction of new features to the eToro platform and our continued experience as a customer (both of which may change our view). As with our other social trading network reviews, this one is also based on using a live real money account. In our review we also focus more on the social trading and trade copying features than on eToro as a broker.

Click Here to open the eToro website as well

What’s clear when using them is the simplicity and ease of use of the eToro social trading platform. This has always been the case, but even more so since “The New eToro” launched on November 5th 2015 which merged their old OpenBook social investing platform and their WebTrader trading platform. The new platform is also fully mobile response, giving you the same seamless experience across all devices (PC, tablet or mobile phone).

Their aim is to make the financial markets accessible to more people and they achieve this by offering a fully integrated solution. Because eToro is both managing the social investment network and acting as a broker, investors can manage everything through the same interface (i.e. no need to sign up with a different broker).

eToro “Popular Investors”

The traders you can follow and/or copy are currently referred to as “Popular Investors”. The amount of them available is large and by joining the eToro social trading network, anyone becomes a potential “Popular Investor” (i.e. even people who only follow other people can become “Popular Investors”, and likewise, so can you). As such, eToro stays true to their vision to create a completely open network where everyone can share, learn, copy, interact and compete with one another.

It’s also worth noting that eToro introduced a “verified” status icon for “Popular Investors”. They can obtain this by displaying their real name and photo in their profile (as verified by eToro customer services). This obviously adds some level of trust that you’re following real people and not computer robots. In addition all traders on eToro risk their own money as well. This is obviously good, though the actual balance of their accounts is unfortunately not shared and can can range from $200 (the minimum deposit value) to many thousands.

When “Popular Traders” get copied they get awarded, and eToro made a notable improvement in relation to the reward structure last year. Before traders with live copiers used to get rewarded with “eToro bonuses” which they could only partially convert to real money, while the rest had to be used for trading purposes (leading many to use this to offset large drawdowns, which was not good for copiers who obviously didn’t have those bonuses).

Now the structure is more straightforward. Depending on the amount of copiers they have, they get fixed monthly commission payments, while the top “elite” traders get 2% annually of the funds under their management plus commission free trading (i.e. no spreads).

In July 2016 eToro also revamped the ‘Popular Investor Dashboard’ which now includes a customer relationship management (CRM) system that enables greater interactions between the Popular Investors and their copiers. This, together with the fact the there are now over 5 million users on the network, only helps in attracting more professional traders wanting to make some extra money from their trading skills. Many now manage over $300K in funds on the eToro platform giving them some great earnings potential.

Finding Traders to Copy

The tools to help you find the traders you want to follow and copy have also evolved over time. The old ‘People Rankings’ used to rank by default the best performing traders by win ratio, meaning traders with 100% winning trades (i.e. high risk because they never close a losing trade) would be near the top. In March 2014, eToro released the ‘Discover People’ tool which allows you to filter through their traders using a wider range of parameters, such as Gain Percentage, Profitable Weeks, Country, assets traded and many more. This tool is a significant improvement to the search capability on offer before, though there’s certainly still some room for improvement too. E.g. some of the parameters are not clearly explained and indicators like maximum open trades or average gain per trade would be useful additions.

The information made available about the past performance of the traders you may consider following and/or copying is also kept basic, making it easy for novice investors to use, though lacking the depth more serious investors may look for. Since February 2015, eToro displays past performance as gains/losses per calender month and year. Before that time eToro was using the modified Dietz formula to calculate historic gains. This formula was complex and confusing, meaning it was impossible to replicate and verify the gains figures. The current formula is very simple and takes into account monthly deposits and withdrawals by the traders too, in addition to the monthly differential of their account balance.

In addition you can view a proprietary 1 year risk score table, a graph with the number of eToro copiers over time, total amount of trades and profit ratio, as well as the 3 most traded instruments. You also have access to the current open trades and portfolio distribution of the trader (i.e. how much % of their balance they’ve got invested in each instrument).

Hence changing the formula and display has been a positive move from eToro, making it much easier for investors to review past performance. The full trader’s trade history is now available too, in theory at least, because it’s pretty difficult to retrieve it if the trader made many trades before (and you cannot download it for off-line analysis). This is a small negative point in our view because it means you can only verify recent P&L figure. You therefore also cannot evaluate all previous trades to get a better understanding of the trader’s strategy and trading behavior at some critical past trading cycles. E.g. if I notice a trader who posted a large loss in a past month, I like to look at the actual trades which led to that loss to get an understanding of whether they were just lucky to move back into profits or whether they used a rational trading strategy.

A useful recent 2016 addition to the eToro platform are the Trader Charts. These help you visualise the past performance of the traders and let you perform “What If” copy simulations. E.g. “what if I started copying Trader ABC with $10,000 6 months ago?”. You can also compare the trader’s performance on the chart with other traders or with other investment instruments (because copying a trader is in essence the same like buying a stock). E.g. “how did this trader compare against the performance of GOOG Alphabet or the GER30 index over the past year.

Once you’ve decided on the traders you want to copy on eToro you have to select how much to invest and risk. You can invest up to 40% of your realized equity in a single trader with a minimum of $100 (i.e. you cannot risk everything in 1 trader). You can also limit your risk by entering a “stop loss”, i.e. the maximum loss before you automatically stop copying this trader. While basic (i.e. you cannot specify to only copy a certain asset class per trader), the eToro money and risk management features are straightforward and easy to comprehend for novices. Your trades are also copied proportionally, meaning that if the trader risks $1,000 of their $10,000 account (1%) on a trade, only $1 will be risked in your account if you allocated $100.

In addition, eToro allows you to try the trade copying with a free fully functioning demo account too (click here to try). This allows you to follow “Popular Investors” using virtual money to evaluate and review their performance in $ gain terms. This will give you a realistic view of what you can expect when you allocated say $100 or $1000 to a certain “Popular Investor”. I.e. it’s positive that you can “try before you buy”.

eToro CopyFunds

In November 2016 eToro introduced CopyFunds, their next generation investment product. There are 2 types of funds you can now invest in:

“Market CopyFunds” which bundle together a range of financial instrument based on a certain strategy or theme. While some of them are similar to normal exchange traded funds (e.g. invest in tech stocks) some such as “PanicMode” are more unique since they combine buying commodities (gold & silver) with selling indices.

“Top Trader CopyFunds” comprise of the best performing traders on eToro. These will obviously be appealing to investors who’re too busy (or lazy) to do their own research. E.g. instead of building your own portfolio, you just pick a fund with the traders who performed best over the past quarter.

I still prefer to do my own research when building my portfolio of traders to copy. However the Index fund of traders I invested in with another social trading service is currently outperforming my own portfolio of traders with them. This obviously shows the potential of this.

Since these funds have only just been launched we cannot make an opinion yet on the performance (we should know more in one of the next review updates). However as a concept we really like it and it’s a nice additional investment option for eToro clients.

Costs & Fees

eToro is still free to join and use (no annual fees or commissions). The only costs you incur are the broker spreads and overnight rollover fees. The eToro spreads on each trade are arguably slightly higher than with most brokers (e.g. 3 pips for EURUSD). However, when you automatically copy trades from other traders you’ll notice (in WebTrader) that in most cases (>90%) there’s no slippage, which makes up for the higher spread. (Slippage is the difference in price the trader you copy gets and you get, and with networks that use other brokers this is normally 1-2 pips per trade.)

The overnight rollover fees charged by eToro are arguably also a bit higher than with most brokers. This should be taken into consideration since most of the traders you can copy have a tendency to keep positions open for weeks or months, meaning over time these rollover fees can add up if open trades aren’t managed carefully. But eToro clearly display the display the rollover fees on their site and before you execute a trade yourself. You also have to consider that accounts can only be opened in $ USD, so if that’s not your normal base currency you also have to take into account the USD currency fluctuation risk (unless you hedge).

If you do consider investing using real money, make sure you check the eToro welcome bonus deposit offer here (please note that they don’t always offer this, but when I last updated this they still were).

If you’re a novice trader there’s a wide range of training materials available to get you up to speed (targeted at any level). There are also weekly webcasts, reviews and daily news to keep you informed on current events. eToro’s social network is also very active and any questions you might have are normally answered very quickly by your fellow investors.

And now …

Can you make money with eToro?

The simple answer is yes, but it’s not easy. Obviously all will depend on your risk level and targets. If you expect to double your account in 1 week, then you have to accept the risk of losing all your equity in that period as well. Our personal preference is to find low risk but profitable “Popular Investors” to copy, though these are not always easy to find. Many of them also have the tendency to leave some trades open for months with wide stop levels which means your equity will fluctuate over time and you have to see this as a longer term investment opportunity.

However over the past 4 years in our opinion the average level of their top ranked traders has certainly improved. No doubt this has been aided by the improvements to the platform, as well as the increased popularity of eToro and exposure of social trading in general.

Is it as easy as ‘sit back and relax’?

No, as some serious consideration is required to select the traders you want to copy and which meet your risk reward level. Just selecting the most popular “Professional Investors” will not be enough. Once you’ve built your ‘people based’ portfolio you’ll have to regularly monitor the progress and re-evaluate your allocations since even traders ranked in the top 10 can get you into trouble.

E.g. investing $10,000 evenly across the top 10 eToro Gurus on May 1st 2012 would have left you with $8,778 by April 1st 2013. Doing the same with the top 10 eToro traders at the beginning of June would have left you with $9,367 by this date. However, as you can see from our 1 year eToro performance comparison tables most traders were actually profitable, and overall losses were attributed to only two traders losing their full allocation.

You may also find our eToro tips section with info on how to find the best traders that meet your risk profile.

Of course if you’re a great trader yourself the opportunities of making money increase since you’ll get paid for everyone who starts copying you. And with the large eToro customer base this can quickly add up to a nice extra income.

More than just trade copying

And here we come to our final review point and that is that eToro is actually more than just a social trade copying service. They want to create an environment where traders share ideas, learn from each other, trade themselves AND copy others. You can create WatchLists of the instruments and/or People you’re interested in. Your personalised News Feed includes real-time market data as well as comments and trade execution notices from other people on everything you’re interested in. And trades can be executed easily from pretty much any screen.

eToro also offers the widest diversity of instruments for you to trade on compared to other social trading platforms. In addition to the usual currencies and commodities you can also trade major indices, stocks and since recently ETFs (exchange traded funds). The benefit of this is the potential diversification of your portfolio.

How you want to use eToro (copy others or trade yourself or both) is not for us to decide. But especially since their latest platform release, eToro makes it pretty easy and simple whichever option you want to try.

eToro Review: Pros

  • simple interface
  • integrated social trading network, trade execution interface and broker
  • free, fully functional demo account
  • integrated risk and money management features
  • trades copied proportionally
  • convenient display of historic performance figures
  • can trade/copy currencies AND major indices AND commodities (oil, gold and silver) AND shares AND ETFs
  • very active social network and excellent training materials
  • low slippage
  • most “Popular Investors” you can copy all display their real and verified full name & photo
  • traders you copy risk their own money
  • advanced ‘Popular Investor’ dashboard and large customer base which helps in attracting ‘real professional traders’
  • CopyFunds – i.e. copy a basked of other traders or financial instruments

eToro Review: Cons

  • unable to easily view the full history of all the previous trades by the “Popular Investors”
  • actual account balance of the “Popular Investors” is not shared
  • for every good performing trader to choose from, there are still plenty of poor ones (most are also longer term traders)
  • Trader Finder/Discover People functionality can still be improved (though currently much better than what it was)
  • higher eToro spreads than with some discount brokers (but if you become a top “Popular Investor” you can get spread rebates of 100%)
  • higher overnight rollover fees than most brokers
  • currently only able to manage your account in $ USD

Click Here to visit eToro

Over the next 7 pages we’re reviewing each of the eToro features discussed above in more detail with screenprints too (please note they’ve not yet been updated to reflect the latest platform release, but the concepts and opinions are still valid). Your views are always welcome below and if you thought this review was helpful please feel free to share.

Last updated: November 14, 2016

 

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Comments

  1. I have been trading on eToro for the past 4 months and agree with your key review points. My main disappointment is the lack of clear and consistent data. While my account is in profit (not by much) I also see a difference between my results and those reported for the Gurus in eToro. My results seem to be less than the Gurus over the same period which I don’t fully understand. Any ideas?

    • Social Trading Guru says:

      Hi Thomas. I appreciate your feedback on our eToro review. With regards to your question and without knowing which Gurus you invested in, I believe the main reasons for this would be:
      - copying a guru who already has open trades, because eToro takes the performance of open trades into account when calculating the gain % and hence there will be a difference because those were not executed in your account
      - the guru has changed their account balance over the period you evaluate, which would mean the gain % is different as well (this would be also the case if you changed your allocation)
      I agree though that because the eToro gain calculations and guru account balances are not transparent, it’s a bit difficult to compare the results. Hope this info helps.

  2. Hi, I have been observing different Guru traders in eToro Copy Trader system and one thing I noticed is that most of the traders have a bunch of very old losing traders by continuously widening their stop loss levels. In parallel to the profit gain by successful closing trades, these losing trades can also grow and consume the account balance. At a glance, that will make it looks like the trader is gaining profit quickly but what is actually happening is either the trader is gaining profit slowly or if the rate of cash allocation for losing trades is higher than the profit gain, the trader is generally losing money instead (please correct me if I’m wrong on this).

    Of course, we can monitor the traders performance after setting up demo account. But is there any other more efficient way to stop this type of traders and distinguish them from successful traders?

    • Social Trading Guru says:

      Hi, this is an excellent observation and one we’ve mentioned in our eToro tips and review sections as well. You are correct in assuming that copiers may actually end up losing money by following trades who use this practise. The issue gets a bit more complicated because if the trader has a good number of copiers, they can use the bonus money they get from eToro at the end of the month to off-set against their widening stop levels. However in follower accounts the widening spreads will in all likeliness tie up most of the allocation over time, meaning that only smaller and smaller gains are made from any new successful trades and overall the copier ends up losing.
      The easiest way to identify these types of eToro traders is to look at the amount and duration of open trades they have. If this is large (more than 5 or 10) and the stop levels of the trades opened for over a month are higher (e.g. over 200 pips) than the stop levels on newer trades (e.g. 100 pips or less) then they clearly use this practise. I guess the only way to stop them is by not copying them. Alternatively you can always close some trades manually, though that would be for advanced investors only and effectively means you trade yourself.

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