eToro Review: Risk & Account Management

You can make trades or follow the performance of the traders you copy from the eToro WebTrader interface. The interface and functionality are both the same for your virtual and real-money accounts.

Entering trades yourself is fairly straight forward and similar to any other online broker application.

If you decide to copy a trader (“Popular Investor”) on eToro’s social trading network, you have to select whether to copy them using real or virtual money. You also have to select how much money you want to allocate to them. The following limitations apply:

-          you can assign a maximum of 40% of your realized equity to 1 “Popular Investor”

-          you have to invest a minimum of $100 per “Popular Investor”

You also have to set your stop loss. This is the maximum amount that you’re willing to lose. You can set this as a percentage of your invested amount or in actual $ terms.  The maximum stop loss amount you can set is 95.00% of the total copy amount, which is the systems’ automatic copy stop loss. The minimum stop loss amount is 5.00% of the total copy amount.

eToro trader copy screenshot

eToro trader copy screen

You also have the choice on whether to copy all open trades the Guru currently has or not (introduced December 2012). The default selection is for the open trades to be copied, which will copy them with the same settings (Such as Stop Loss, Take Profit, Over Weekend) and the same proportional amount. However, as discussed in our eToro tips section, you may wish to deselect this option.

From the moment you copy a “Popular Investor”, any trades they do will be done proportionally in your account. I.e. if they risk 3% of their account on a trade, 3% of your allocation will be risked on that trade. The risk management of your allocation is therefore totally dependent on the risk strategy of the trader. Overall though, you manage the risk in your eToro account by the amount (% wise) you allocate to each trader. “Popular Investors” manage the risk by applying stop levels to each trade. They may change the level of these stops at any time to increase or decrease the risk, and any of these changes will be replicated in your eToro account’s open trades.

If you’re using eToro’s social trading platform to copy other traders you can see and review their performance from the WebTrader interface as well (see image below). For each Guru you follow it’ll show their current status in the Open Trades tab.

Assume you started with an allocation of $1000 to Pyrus. When it reads under amount and units, $76.41 of $1,100, it means that currently the open trades are risking $76.41 of your allocated capital, which is currently $6 in profit from the start. The net profit and gain % relate to the current open positions. You can drill down and view every open position by a Guru you follow, and if you like, you can close any open trades from this screen as well.

Your total equity at the bottom is calculate as:

Account Balance + Invested Amount +/- Net Profit/Loss

Any unfilled orders can be viewed in the Open Orders tab. The history screen shows the closed trades for the “Popular Investors” in your account. A limitation here though is that it’ll only show the history for the past 100 trades. Therefore, to evaluate the performance of a “Popular Investor” in your account, you should look at the amount of units (in $) +/- the net profits of their open orders and compare this to the amount you allocated to the trader. Unfortunately there’s currently no easy way to retrieve the historical performance of a “Popular Investor” you used to follow in your account, unless they’re within the last 100 trades (unlikely) or you make a note yourself when you stop copying them (something we do ourselves).

eToro WebTrader Interface Open Trades Screen

eToro WebTrader Interface Open Trades Screen

In summary, eToro has tried to make managing your account and risk fairly straighforward. By limiting the amount you can allocate to each “Popular Investor” (40%), eToro straight away limits the maximum loss you can incur by following a risky trader to 40% of your equity. You can further limit losses by applying a stop level level per trader you copy. Within your allocation of each “Popular Investor”, the actual risk is managed by the trader themselves and it’s therefore up to you to evaluate their risk level by looking at their profile or by testing them in your demo account. While you can review the total performance of each “Popular Investor” you are currently following from one eToro WebTrader screen, the fact that your full trade account history per trader only goes back 100 trades is a severe limitation, especially if you want to review the performance of traders you used to follow in the past.

 

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