eToro Copytrader Experiences: Is it worth it?

eToro Copytrader, the extension of the Openbook, was launched in 2011. This trading tool is absolutely revolutionary. With Copytrader, you can follow other traders and copy all their future trades with just a single mouse click. To copy other FX traders, you launch the eToro OpenBook and check the rankings of other traders. If you think that a person is quite successful (and should continue to be so in the future), then you click on it and can bet an amount up to 20% of your assets on him or her. If you allocate $ 1,000 and that trader opens a position with 15% of his assets, then you will almost simultaneously and automatically bet $ 150 on the same position. You can follow up to a maximum of ten successful traders.

This sounds very enticing. Instead of constantly reading news and trying to draw conclusions, and spending much time with the technical analysis of price movements, you just copy successful traders. So your task is reduced to identifying successful traders and then copy their actions with eToro Copytrader. So this sounds almost as if you could copy the best chess player in the world and win every game.

The problem is that “if something sounds too good to be true, it probably is“. There are no risk-free profits and no tools will make you rich while you are sleeping. Continue reading to learn more about the experiences we have made with the eToro Copytrader.


Can you Earn Money with eToro Copytrader? Our Experiences

As maybe yourself, we were absolutely thrilled when we first heard about this social trading platform from eToro. Simply copying successful traders seemed to be an easy way to make lots of money without any real work involved. Due to bad experiences in the past, we didn’t deposit real money to test the eToro Copytrader. Instead, we just opened a free demo account with eToro and used the $ 10,000 play money to make our own experiences with Copytrader. In the beginning, we spent a lot of time to find the really successful traders. We felt it important to choose not those traders with the highest profit, but to copy those traders who have earned continuously money over a long period of time. So we ended up with copying 10 traders. We have allocated them amounts between $ 500 and $ 2000, and we only used three-quarters of our $ 10,000 altogether. The result of several months of following other great traders was a loss of nearly $ 2,000.

In spite of the careful selection of the best traders we experienced a loss of $ 2,000, that is minus 20% of the total capital in a few months. Based on the capital invested, the loss was as much as 27%. How is this possible? We show you some reasons why our test with eToro Copytrader was not successful (and probably we were not the only ones to lose money, even though it was just money from a demo account). But let’s first have a look at one of the most copied traders and talk about a well-known financial market theory later.


NMarijus 2’500 Copiers and 15,800 followers

Now, in February 2012, NMarijus still has more than 2,500 traders who copy his trades using the eToro Copytrader. And when we chose him, he seemed like a very good choice to earn easy money while sleeping:

Looking at the chart, you can see that the Lithuanians managed to achieve a gain of 450% over a period of five months. And this was not with a few lucky trades where which he risked a lot of money, but with continuous small trades adding up to a nice profit. This is why he looked like the perfect trader to copy.

Unfortunately, shortly after we copied his trades, he started losing money:

His whole gains of five months were completely lost after a few weeks. And yet still NMarijus has 2,500 copiers. We hope that many of them are people not risking real money. Because those who started following him in the wrong moment and didn’t stop to copy him lost a large portion their assets.

So how could this happen? Read more what the potential reasons are.


Losing Money with eToro Copytrader – Reasons and Explanations

Based on experience with the copied traders, we see the following reasons and explanations for why the eToro Copytrader didn’t work for us (and probably for many other as well).

Survivorship Bias

This is a well-known phrase from the analysis of mutual funds. Especially in the hedge fund industry, this is a common problem. What it means is that that there is a tendency to watch only the performance of “survivors”. This is the so-called “survivorship bias”. For example, hedge funds make risky investments. Some of these funds make huge losses. The result is that investors sell their shares and the fund will be closed eventually. If such a fund is liquidated within three years, it will not appear in a performance analysis of hedge funds over a period of five years. Thus, the performance for hedge funds appears to be better than it actually is.

And the same happens when copying other traders. eToro has hundreds of thousands of customers. All their results are evaluated. And even if none of those traders has any idea of ​​Forex trading, a certain percentage of them will succeed – just out of pure chance. Such traders will appear in the leaderboards of eToro and will be copied diligently. Other traders may not know whether such persons have been successful because of their experience, their sharp analytical skills or their instinct, or whether they were just lucky.

Trading Strategy no Longer Works

A similar explanation is that the trading strategy no longer works. This might be the case with Nmarijus. You probably know the statement often seen in disclaimers and risk warnings: “The past performance is no guarantee for future profits.” The Forex market can change quickly. A strategy that worked until recently can suddenly lead to high losses. It may be that you follow a trader with a working strategy. But if you follow him for too long, the strategy might not work anymore because of changed market conditions.

Influencing the Market

It is almost impossible that a few market actors can influence the currencies in the global foreign exchange market, simply because of the huge volume traded. But what if a trader such as NMarijus is copied by 2,500 people who make the same transactions almost at the exact same time? We cannot answer this question for sure. But if some of the Copytraders have lots of capital, then an order of NMarijus might be bloated within in seconds (or fraction thereof) by a factor of 10,000 or more. This is why we cannot rule out an influence of the market per se.


What Should You Do? Our Recommendations

We are still convinced that eToro has launched a really ground-breaking innovation. However, we recommend the following:

Be Careful Who You Copy

Spend lots of time analyzing who to copy. For example, strong fluctuations in the chart show that a trader uses too much of his capital on individual trades. That may be fine for some time, but carries the risk that at some point, a large part of the capital will be lost in a single trade. In addition, we recommend following traders who have been successful for a longer period of time.

Guru Finder – Use the Advanced Search Function

The newly launched Guru Finder from eToro is a great tool to find the really successful traders. You can use different filters when searching for successful traders:

Average Position: This shows the average size of a position in relation to available capital. As you perhaps know from the rules of money management, a maximum of 1 to 5% of the assets should be risked in a single trade. The default setting of 50% from eToro is much too high. Change the filter to 10% or below in order to find the traders acting less risky.

Leverage: These percentages do not show the leverage, but show how often the trader enters into positions where he had a leverage of 100 or higher. This is another measure of the risk involved.

Weekly Drawdown: This value indicates the highest measured loss within a week over the observed period. Again, the lower the value, the lower the risk is.

Winnings Weeks: The percentage of weeks closed with a profit for a certain time period. If a trader has made profits in 20 of 25 weeks, then this value is 80%.

Win Ratio: This is the number of trades with profit divided by the total number of trades. A trader who closed 70 out of 100 trades with a profit has a win ratio of 70%.

Gain: This is the income (including unrealized gains or losses) calculated as a percentage.

Min. Number of Trades: Here you can search for traders who have completed a minimum number of trades in the period. The higher the number of trades is, the more meaningful are the other analyzed values.

Avg. Trade Duration: Here you can set how long the average holding time should be at least. The scale ranges from one hour to 30 days.

Exposure: Here you can search for traders investing a certain amount of their total assets. If a trader uses only 5% of his capital, then you can assume that only a maximum of 5% can be lost during a certain amount of time. On the other hand, the profits in relation to capital allocated might be very low. It seems to us that the first value in the Guru Finder, the “average position”, is more important than the exposure measure.

Portfolio and History

In addition, you should have a look at the portfolio and on the trading history before copying a trader. In the portfolio you will see what types of trades that person performs, divided into the categories foreign exchange, commodities and indices. An in the trading history you can see the last 100 executed trades.

Important: In the history you can also see if the person has also copied trades from other people. You do have to consider this in your risk management. Your risk is higher if you follow people who follow other traders that you already copy directly by yourself.


eToro Copytrader Experiences: Summary

The Copytrader is a leap into another world of Forex trading. Thanks to the transparency, you can easily find and automatically copy successful traders. We have shown that this tool is no guarantee for easy and risk-free profits. It is important that you invest a lot of time in the selection of suitable traders to copy and to check these persons regularly.

Copytrader is definitively worth a closer look. We recommend you to make your own experiences.

Sign up for a free demo account immediately in order to test Copytrader by yourself



And what are your experiences with the Copytrader? Write  them down now: