How to invest in the stock market using eToro

I’ve always had an interest in the financial markets but, like most of us, I had no real idea how to break through the castle walls and actually trade. The gatekeepers of Wall St. and The City have forever been committed to keeping the masses at bay so they can charge their hefty trading fees (The Wolf of Wall Street – true story).

Fancy yourself as the next Warren Buffett? Unlock the new world of social trading with our complete guide to investing and copying top traders on eToro.

That all changed when I came across a platform called eToro which blew open the doors and allowed me to start trading online.

Since then I’ve risen through the ranks of eToro and today have hundreds of people who follow and copy my trades because of my healthy and consistent gain.

Sound easy enough?

Well, actually it’s not all that straight-forward. It’s important for you to know that I have been on quite a learning curve. Whilst I’ve been making good money (and enjoying the whole experience), I’ve also made some rookie mistakes.

For total beginners the eToro platform and the concept of trading itself can be a little daunting at first. So with the benefit of hindsight and my own personal trading experience on eToro, I wanted to put together a comprehensive no-nonsense guide to help others get the best results as quickly as possible. And here it is…

What’s on this page:

• What is eToro?
• Getting started
• Copying other traders
• Trading well yourself
• Becoming a Popular Investor
• Understanding (and reducing) the costs
• Avoiding common mistake

What is eToro?

eToro would describe themselves as an accessible trading platform that incorporates a social element into investing. I’d describe them as Facebook for trading. They first went live in 2006, and are now the world’s largest investment network with a community of 3 million users and 130 million trades so far.

The platform and the wider phenomenon of social investing have been widely covered by mainstream media, including a recent BBC documentary called Traders: Millions by the Minute.

The most unique feature of eToro is probably ‘CopyTrader‘. This allows you to sort through other users and plainly see their trading history, including how much they have made or lost over any given period. If you find someone you like the look of, you can allocate some funds to automatically copy their trades.

Another big plus is the ‘Popular investors‘ program. This rewards users based on how many copiers they have in the form of monthly commission (up to $10,000 a month!). The program also incentivises safe and responsible trading, and we’ll discuss this in more depth towards the end of the guide.

So with the social and copying features, really very little financial knowledge is needed to get started, but you’ll certainly learn a great deal relatively quickly! Most of the need-to-knows you’ll pick up by reading this guide or playing with a demo account.

Take it easy at the start and make sure you know what you’re doing before investing larger amounts of money. Trading on eToro can be very profitable (and this guide will help you achieve this) but it’s important to note that, whenever you’re dealing with the markets, you can lose money too (“your capital is at risk”)!

Getting started

1. Sign up for eToro.com

   No lengthy paperwork here, it’s free and really very straightforward! You can either join using your Facebook account or simply enter a username, email address and password.
   You’ve now opened up the world of real-time trading  You’ll be taken to ‘My Feed’ which will be empty since you haven’t yet followed any traders.
   Register on eToro

2. Deposit

   You don’t need to make any deposits now if you don’t want to, you might want to get familiar with it all first. However since this is a guide about investing within eToro, you will of course need to make an initial deposit to do this.
   Click on ‘Fund your account’ in the top right to make a deposit. The minimum you can deposit is $50 but I recommend you start with at least $200 if possible. The main reason for this is that you need $100 to copy someone and you don’t want to put all your eggs in one basket.
   Note: eToro’s main currency is $USD but you can deposit in £GBP and other major currencies. It will be converted to $USD in your account.

3. Familiarising yourself with the platform

   I’ll just give you a very quick overview of the main sections of eToro for now. We’ll delve more into each one later as I explain how to browse and trade in detail.
   eToro logo
   Click here to see ‘My Feed’. This is just like your news feed on Facebook, where you can see everything the traders you follow have been doing and saying recently.
   People
   The heart of the community. Search through other traders who you may want to copy or follow. There are loads of useful filters to help narrow down to the results you want, such as markets and performance.
   Markets
   The place to research the markets available to you: stocks (eg. Apple), currencies (eg. GBP/USD), commodities (eg. gold) and indices (eg. UK100). You can only purchase stocks here.
   Trading
   Clicking this will open a new window called the ‘WebTrader’. This is the actual trading platform for all markets except for stocks. You can also monitor your profit/loss and open/closed trades.
   Copying other good traders (CopyTrader)

This is the simplest way to invest on eToro and so the most recommended path for beginners. When you copy someone, every trade they execute is simultaneously opened in your account too and then closed when they close it.

It’s all proportional to what % of your total account’s funds you choose to allocate to them (more on this later), but ultimately you will achieve the same rate of return as they do.

Finding reliable traders to copy on eToro isn’t always as straightforward as it might appear. You need to know what to look for and what to stay clear of (more on this later on). Allow me to help you master the art of copy trading…

Avoid the most common mistakes!

Let me point out the numero uno mistake beginners make right away:being a sheep. When you venture into the ‘People’ section looking for a trader to copy it’s intuitive to sort by ‘most copied’ and blindly copy the top results. You’d think that the most copied people have lots of copiers for a reason, right? The wisdom of the crowd perhaps.

But the reality is that most people on eToro are complete beginners and don’t really know what they are doing. If a few people copy a trader for the wrong reasons, that trader can quickly ‘go viral’ with exponentially more copiers following suit without thinking for themselves. Let me give you an example.

A popular yet under-performing eToro trader

Even though this trader has extremely poor performance (he would have lost half of your money over the last month if you’d copied him), he still has close to 4,000 people copying him! Bizarrely this happens quite a lot on eToro, so I’ll be explaining the process I follow when copy trading.

Having warned against consistently under-performing traders, the other big pitfall beginners fall into is over-trading. It’s incredibly tempting to keep checking how much you’ve made or lost every few hours, but emotions will cloud your better judgement and lead to tinkering.

No trader will EVER profit every single week or month, so I highly recommend you take a medium/long-term approach. This requires patience and discipline, but you’re more likely to see better gains over time.

Finding the best traders to copy

First off click on ‘People’ at the top of any eToro page.

You’ll be greeted by the ‘Discover people’ page. The default search parameters are as shown in the screenshot below. Everything highlighted in blue you can click on and change to meet the specifications you are searching for in potential traders to copy.

Once you hit ‘search’ you’ll see a list of traders that match your chosen criteria, ordered by number of copiers they have. To further drill down you can use the filters on the left of the page. The ‘Popular Searches’ list below this can also be useful as a shortcut.

People search results

6 attributes EVERY trader you copy should have:

1. Been on eToro for at least six months and haven’t just made amazing gains because of one or two lucky punts
2. Really demonstrate their market knowledge and experience on their profile feed
3. Have low weekly and daily drawdowns (basically how much they’ve been ‘down’ over a given period). Anything more than 10% should be a red flag
4. Don’t have ridiculous returns. I know this may seem counter-intuitive, but if you see someone with 1,000%+ returns in a very short period of time, realise that this is unsustainable luck and can only be achieved by being reckless
5. Don’t have a 100% win rate. It’s perfectly normal to close some trades in the red, this is a sign of discipline and experience. Beginners chase their losses, proper traders know when to cut loose
6. Are communicative. You want to copy someone who can help you learn and is willing to share their trading methodology. If they don’t reply to your messages they either don’t care (likely to trade carelessly too) or they don’t know how to answer because they don’t have a clue what they’re doing!

By clicking on the ‘stats’ tab in a trader’s profile you can access some very useful information to help determine whether they are worth copying or not.

Update: the stats page has changed a little, but essentially the same info is there.

Below you can see my own returns since I started on eToro. If you had copied me with $100 a year ago, you would now have about $225. How does that compare to your savings account’s interest rate? It goes without saying that such returns do come with risk too – if you had started copying me a month ago, you would be down around 10%.

My eToro performance

The other key things to look at are the drawdowns and the average trade size. These stats are for my last three months trading.

Trader’s risk/reward stats

The weekly drawdown shows the maximum I’ve ‘been down’ in a single week during this period. The average trade size is relative to my total equity. In other words a 0.8% average trade size means that, on average, assuming I have $1000 in my account, each trade would be around $8. It’s not so much the $ amount we care about, but the % proportion. Again, this is to establish how safe or reckless a trader is.

If like in my case the average trade size is very low, this is a sign of a safe and reliable trader. Think about it – even if a few trades go completely wrong I’ve still only lost a few percent of my account overall. So if you see someone with a high average trade size, BEWARE. If they get just one or two trades wrong, all their money is gone (and so is yours if you are copying them!).

How to copy a trader

Copying itself is simple. Once you’ve found a trader who you feel is reliable, simply open their profile and click on the ‘Copy’ button below their profile picture.You’ll then be prompted to enter an amount with which to copy that trader, and you’ll see some useful information appears.

The “1.5% of realized equity” (in the example above) simply means that $100 is 1.5% of the total you have in your account. So this gives you an indication of how many of your proverbial eggs you are putting into this trader’s basket.

To maintain a sensible, diversified portfolio of investments I personally wouldn’t allocate any more than 25% to any single trader.

“Your projected average trade size” leads us to how the copying actually works in real dollar terms. In the example above, each trade you copy from this person will be (on average) $1.87. Proportionally this is just 1.87% ($1.87 out of the $100) of your total investment in them. In this case, it’s a very good sign as it shows a cautious and safe investment style.

Monitoring your performance

Clicking on ‘Trading’ takes you to a whole new (and very important) part of eToro: the ‘WebTrader’.

This is the actual trading area and your nerve-centre. Here you can monitor all of your current open positions and close them, and also access a record of your trading history. This is what my WebTrader looks like:

My WebTrader showing Open Trades

All of your copied traders (and in fact any of your own investments) will be listed in your WebTrader. You can see your overall return on the investment in a trader, and also click on the person to see what positions they (and you) currently have open, and how these are performing individually. Usefully you’re able to close individual copied trades without uncopying a trader altogether.

Following users

It’s worth noting that you can also just follow traders (without copying or investing in them) so their updates show up in your news feed, as with Twitter. It’s a good way to gauge whether you think they’re worth copying and tune into useful information.

Helping others out :)

Trading well yourself

Once you’ve familiarised yourself with the eToro platform and (hopefully) had some success copying other people, you can start thinking about placing your own trades.

The good news is that you don’t have to be a financial genius with decades of experience to make money trading yourself.

The bad news is that you do need to think a bit harder and do your research. Any shortcomings are squarely on you now!

I strongly recommend that you start by trading just stocks. Leave the commodities, indices and currencies alone for now as – trust me – these carry much more risk and higher costs.

Focusing your energies on the stock market also gets you used to the ‘WebTrader’ and the whole process of opening and closing positions without too much pressure. You probably have a fair amount of existing consumer knowledge here too.

Which stocks should you choose?

Well, that’s up to you partner. I cannot offer specific investment advice. All I will say is that it pays dividends to do your homework, read the news frequently and listen to earning announcements. Only invest in stocks or companies that you believe are in a strong and healthy position to resist market shocks, and ultimately have room to grow.

How to place a trade

Click on ‘Markets’, then ‘Stocks’, then ‘Sector’. Choose a sector, for example ‘Consumer goods’.

You will then be presented with a list of all consumer goods stocks tradable on eToro, along with their respective prices and change over the past day.

eToro markets

Let’s pretend we want to buy some Apple stock, say $50 worth. Just click on ‘AAPL’ (this is the ticker used for Apple on the stock exchange) to display a chart showing the company’s stock prices over the last year. You’re able to change the period shown down to the past week.

Apple stock price information

You will also see the ‘Live Feed’. This displays all the latest news and insightful discussions surrounding the Apple share price and the company’s activity in general.

If you want to invest in Apple (on the basis that you believe the share price will rise over the medium/long term), click on ‘Invest’ in the top right corner.

Then enter the amount (eg. $50) and click ‘Select’. Note that the minimum amount you can invest in any stock is $10.

Placing a trade

Now all you need to do is confirm your trade to be placed, and that’s it! You’re now invested $50 in Apple 

Monitoring your performance

Click ‘Trading’ to open up your WebTrader and see your open positions.

My WebTrader showing Open Trades

If you look at the highlighted Apple stock, you can see that I bought $500 worth 68 days ago, and that I’m currently down 1.1% on this trade, which translates to -$5.49. This is the amount I would lose if I decided to sell these stocks (close my position) right now by clicking on the ‘Close’ button.

As I warned earlier, do not fall into the trap of checking the real-time performance of your trades every hour! This just leads to over-trading which again, is very costly.

I’ve had to develop the discipline to let the markets take their course, and be confident that over the longer term the value of my portfolio will rise (which it has). It’s a strategy that has served me well and means I don’t make rash spontaneous decisions just because a company released some ‘bad’ news and the market overreacted in the short-term.

Advanced trading

Only once you really feel like you know what you’re doing on eToro (ie. been actively trading for a few months) should you even consider trading indices, currencies (forex) and commodities. There is much more risk involved in these markets compared to stocks, so I’m only going to briefly cover these to the extent that you know what you’re doing.

Becoming a ‘Popular Investor’

This program acts an incentive for users to trade responsibly and be an active part of the community. As soon as you start performing well on eToro you’ll notice other people will start copying you! This is a really rewarding and exciting moment, and leads to another way for you to earn money.

You need just 10 copiers before eToro starts paying you commission every month, starting from $100. As your copiers increase, so will your commission… up to a maximum of $10,000 a month!

eToro’s Popular Investor commission levels

I personally have around 150 copiers for which eToro is paying me $300 a month. Once I reach 250 this will be bumped up to $600 and so on, according to the chart above.

My own Popular Investor payouts

It can take some time to build up your copier numbers, but 10 really isn’t that hard to achieve so long as you make consistent solid trades, following my advice in this guide.

It also pays to be active in the community. Posting regular updates, getting involved in discussions and answering other people’s questions all help get your name out there to attract interest.

Understanding (and reducing) the costs

Just like any company, eToro exists to make money from providing a service. Primarily they do this by charging users a small fee on placing or holding positions (clearly outlined on the order windows). The costs of trading here are far less than traditional stockbrokers and fund managers.

Trading stocks has the lowest fees on eToro, which is one reason why I recommend you stick to this market when starting out.

When copying another user you’ll be charged the same fees as they are on trades (which may not always be stocks), so it’s worth checking your WebTrader to see what positions they have opened.

Stocks

eToro summarise their fees for buying stock as follows:

Fee of 0.1% of the execution price or a minimum of 1 cent per transaction.

Simple enough, but a quick example never hurts:

If you buy $200 worth of Apple stock you will pay on eToro: $200 + (200 * 0.001)which is $200 + $0.20 = $200.20. Their fee is just the extra 20 cents.

There are no recurring fees for holding stock positions open, nor are there any fees charged when you sell the stock.

As the fees on trading stocks are already so low and fixed only when buying, the only way you can minimise the costs is by not over-trading and investing for the longer term.

Forex, indicies & commodities

I feel like I should give you a quick overview of the fees for other kinds of trades too. Firstly to reinforce the benefits of sticking to stocks and secondly because people you copy may be opening other kinds of trades which will affect your account too.

Withdrawing

The only other fees you will encounter on eToro are the withdrawal fees if you want to transfer funds out of your account. These are shown in the table below.

eToro withdrawal fees

In terms of reducing the cost associated with withdrawing money, it would be most advantageous for you to wait until you have above $500 (say $1,000) and withdraw in one lump sum. You would then only be charged the $25 once.

Recap: Avoiding the common mistakes

I’ve gone through A LOT over the course of this guide and covered up plenty of pitfalls along the way (high five for making it this far!).

Before we finish up I just wanted to summarise for you the main mistakes in one list:

• Over-trading – this is a poor strategy for beginners and quickly racks up the fees
• Allocating more than 25% of your total equity (funds) to one single trader (copy)
• Blindly copying the most copied traders
• Copying people with absurd rates of return (what goes up often comes down)
• Copying people without properly researching their profile and activity
• Not doing your homework on stocks before investing
• Allocating more than 10% of your total equity to one of your own trades
• Using too high a leverage (advanced trading)
• Trying to close every single trade in the green (don’t chase losses!)

A final word on over-trading

This is a point that I want to expand on a little more, specifically in relation to copying other traders. Below is a screenshot of my equity chart over the past six months. The red line shows the number of people copying me.

My equity vs copiers chart

As you can see, copiers tend to flood in when my total equity (blue line) peaks and leave when my gains fall. To the lay-person it seems like rational behavior, but actually it’s a clear sign of knee-jerk reactions without considering that the overall long-term trend is upward.

Even the best traders in the world will have some fluctuations, but most copiers lose money by copying at the peaks and stop copying shortly after because they’re down a few dollars.

In my case, if these people had stuck with me for the longer term (as I recommend throughout the guide), they would have been much better off!

The same holds true for the stock market in general.

Long-term growth of UK stock market

Despite short-term market crashes, the trend over the long-term is UP. Why? Because all the companies in any stock market are constantly striving to create VALUE.