The following guest post is courtesy of eToro, a leading social trading and investment network.
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eToro revolutionised the world of online trading and investment when it pioneered the concept of social trading. The new eToro allows traders to create public profiles and let other people see all their trading activity and copy their investments. The platform shows their trading Stats, Portfolio, trading history and risk levels. Every trader also has a News Feed that functions a bit like a Facebook Wall. Traders can post messages, start discussions and talk to each other directly. This openness and free flow of information has transformed the way that people access the global financial markets and manage their own investments.
It’s possible to quickly create a people based portfolio and implement an investment strategy based on copying others, but successful copy trading brings its own challenges.
The starting point for successful investing has always been effective analysis. Traders use fundamental and technical analysis to analyse all the factors that influence the performance of assets. They also use charts to study an asset’s past performance to try and predict how its value will change. Exactly the same principles apply to people. To become a copy trader it’s necessary to analyse the performance – and the motivations – of the people who you want to copy.
Popular Investor Daniel Becerra from Argentina (DanyBecerra) has some interesting advice for anybody who wants to create a people based portfolio.
He recommends that you diversify with people in exactly the same was as you would diversify with a range of assets.
In your portfolio try to begin with a list of 3 or 4 Popular Investors, so if one of those guys has a bad month you won’t get hurt. All of the other 3 guys can absorb the losses, and maybe you can even make a profit.
DanyBecerra also recommends copying Popular Investors who specialise in different investments (eToro offers hundreds of different stocks, commodities, indices, currencies ETFs and ADRs from around the world). Not only are you more likely to be protected if a particular asset performs badly, but you will have a good opportunity to develop your own knowledge of how different asset classes perform.
- Look for Popular Investors with experience – think twice before copying somebody who’s only been trading for a few months.
- Talk to other traders – find out why they use particular strategies and what their goals and motivations are. Never be afraid to ask questions.
- Learn how to trade – every successful trader is a potential teacher. Don’t just login to check your account balance. Take the time to analyse the trades you are copying.
Traders who build a profitable people portfolio and engage with the eToro community have already taken their first step towards becoming a Popular Investor and being copied by others in turn. This can lead to a lucrative second income with top Popular Investors being rewarded for being copied. The most successful Popular Investors earn up to 2% AUM (assets under management).