Forex $ocial Traders


eToro Copy Trading Risks | Blindly Following the Herd & Chasing Gains

eToro is a multi-asset platform which offers CFD and non CFD products.

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

This content is intended for information and educational purposes only and should not be considered investment advice or investment recommendation.

I have been in a copy trading world for many years and one of the most frequently asked questions by people interested in copying successful eToro traders is whether copy trading is risky or not.

Well, I can tell you that for some copiers it is very risky and for other copiers it is very profitable activity.

Copy trading is no different than other things in your life. Copy trading is not good or bad. It simply exists.

It can have a positive outcome where you make good money by copying a good and responsible copy trader or negative outcome where you suffer a big loss by copying a bad trader or gambler.  If you experience the latter you cannot blame idea of copy trading.  You can only blame yourself for choosing bad trader.

Let´s compare copy trading to a knife.  You can use knife in two ways…positive…as a very useful tool for example to cut vegetables while preparing a delicious meal… or in a negative way… as a weapon to kill somebody. Killing someone with this tool is not knife´s fault. In this example all quilt goes to a person who holds the knife.

Blindly chasing gains

Social investing network eToro is a great copy trading place with a strong community. eToro makes a good job in presenting you their best and most successful traders. Copying them is as easy as clicking your mouse button couple of times.

As always, everything good has also a dark side. Good thing is that if you want to find great traders to copy all you need to do is to go to Copy People section and you will instantly see best of the best.

copy people

On the copy people page you can see TRENDING or MOST COPIED traders and by clicking on their names you can go to their profile where you can easily copy them.

Dark side is that most people are very lazy and all they need to know is how much that trader made in the last 12 months.

So when they see a high gainer they simply copy him without analyzing his trading system, behaviour or past performance.

Blindly following the herd

Another big mistake and copy trading risk is to blindly follow the herd.

blindly following the herd

There are copiers who simply copy those traders who has a lot of copiers. For them it is a sign that the trader is very good and hundreds or thousands of copiers cannot be wrong.

Believe me that nothing is farther out the truth.

Let me show you one example.

jurzikowiankaToday I was browsing eToro´s Copy People section and found one interesting polish trader Daniel Mateusz Czyz alias jurzikowianka.

In the last 12 months he gained more than 52% profit. That is a great outcome.

It also seems that Daniel is not a risky trader because his overall risk score is only 4 out of 10. I would say that he is a medium risk trader.

Looking at number of his copiers which currently is 652 we can consider him a popular trader.

Altogether you might get an impression that copying Daniel is an easy way to make big money on eToro, right?

For many copiers these informations are good enough to make a decision to copy the trader.

But if you do not want to put your hard earned money in unnecessary risk I would advice you to do your homework and analyze every potential copy trader in more depth.

Gaining more than 50% in the last 12 months is great but knowing his past performance is very important too.

Daniel´s full trading history reveals that he has opened his eToro trading account back in 2013 and after first 12 months of trading his balance was down -94.52%! Not a good start at all. Don´t you think?

Year 2014 was little bit better but still he was down -33.70%  Following year 2015 his drawdown was even worse than in his first year -157.65%. Next year 2016 he “almost” broke even with -20.65% loss.

Finally last year 2017 he suddenly did something differently, showed excellent +57.33% profit and boom… he immediately attracted 652 copiers.

I bet that majority of these copiers didn´t even think about his past 4 losing years when they were clicking COPY button.

OK, chances are that Daniel has learnt his lessons and became a very good forex trader. That is really possible.

But when I continue checking his trading statistics and portfolio there are also other things that worry me.
For example, Daniel´s winning ratio is almost 93% which for many copiers is a good news but for me it can be a warning sign because I have seen hundreds of traders who had such big win ratio and eventually they busted their accounts.

martingale forex

Daniel trades mainly currency pairs like EURAUD. When you check his prtfolio you may notice what trading system he uses. He opens one position with a huge stoploss and small profit target (compared to stoploss). If the market moves against him he adds another position. If trend continues against him he adds another position and so on.
This way he tries to average down the price and waits for market reversal in his favour when he closes some or all positions in overall profit. These are signs of martingale system and for millions of traders it was a road to hell.

Anyway, I cannot judge Daniel as I do not have all informations about his trading system. He might have some trading rules like not risking all his balance on one currency pair or maximum number of additional positions and so on. He might really become a good trader. Who knows. Only time will tell if his trading system is sustainable or not.

All I wanted to show you on this example is that seeing some trader gaining double or even triple digits profits in the last 12 months and having 600 or more copiers are not enough informations to copy someone without evaluating his trading performance and system in more depth.

And if you really like this trader and want to copy him no matter what, my suggestion is not to risk all your money on one trader and diversify your copy trading portfolio by adding other popular investors who trade other assets and have different trading system.

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision. This is not investment advice. Cryptoassets are highly volatile unregulated investment product. No EU investor protection. This content is intended for information and educational purposes only and should not be considered investment advice or investment recommendation.


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