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Etoro Tutorial In this tutorial VideoHow to Use eToro App - Tutorial for Beginners Feed: you can read posts made by the trader here. Spielbank Mannheim 9 min read. Search for confirmation You can achieve better investment results by Gewinnchance Postcode Lotterie looking for confirmation. Part 4: market conditions Before you open an investment, it is always advisable to examine the market conditions.
At eToro it is not possible to invest in partial shares. By pressing the Open Trade button, the investment opens directly within your account.
Within eToro's software, it is also possible to automatically manage your winnings and losses. It is important to remember that these values are never guaranteed.
When the market is very volatile, your stop loss or take profit may be executed against a less favorable value. You also have the option to use a trailing stop loss.
This is a special type of stop loss that moves along when the price rises. This prevents you from closing the position too early and missing out on potential winnings.
At the same time, you protect the investment from a potential future loss. This makes eToro a lot more attractive than the competition.
By offering this service, eToro hopes that you will also trade in shares by using CFDs. With CFDs you can actively trade leveraged shares.
By charging financing interest, they make a high profit on this type of trading. At eToro you can also choose to take a little more risk.
You can do this by using CFDs. CFDs are financial derivatives that allow you to apply leverage. In this part of the tutorial we will discuss how this works.
When you place an order, you can choose to use a leverage. When you apply leverage, you only need to deposit a small part of the total trade.
The rest of the money is then financed by the broker. You can use a leverage by moving the multiplier from X1 to x10, for example.
Applying leverage ensures that both your winnings and your losses move extra fast. When you buy a share without leverage, price fluctuations have a less significant impact on your results:.
When you apply a leverage of X10, the results in both directions increases exponentially. You would then achieve the following results:.
Leveraged investing makes it possible to achieve a high return in a short time. At the same time, trading with leverage is also a lot riskier.
Furthermore, it is important to remember that this way of trading is certainly not free. When you trade with leverage, you borrow some of the money you need.
If you leave the trade open for more than a day, you will have to pay financing costs. However, it is important to take these costs into account.
When you want to make a long-term investment, it is smarter to buy the shares without a multiplier.
You won't pay any extra fees and you can hold the position for as long as you want. At eToro, it is also possible to make a profit when the stock prices decrease.
If you want to benefit from a decreasing price, you should press the sell button in the order screen:. When you open a sell position aka short position , you earn money when the price drops.
It is important to mention that you can only speculate on a falling price with CFDs. It is also possible to place an order with eToro. With an order, you only open the investment when a certain price is reached.
You can do this by changing the setting Trade to Order within the eToro trading platform. Subsequently, you can set the price at which you want to buy the share.
You can deposit money within eToro at any time. To do this, switch from your virtual demo account to a real money account. After you switched to a real money account you can press the deposit money button:.
Before you can deposit money, you must first verify your identity. The European Union has made this mandatory to combat money laundering. You can deposit money to eToro quickly by using your credit card.
You can easily manage all your open positions. You can then view each investment and its performance. You can also adjust the moment you take your profit or your loss.
When you invest with leverage, you must keep enough money in your account. When there is not enough money left to finance your open positions, you will lose the full amount in your account.
Many novice investors immediately lose all their money at eToro. This is often because they act too recklessly. It is advisable to practice with the demo first.
When you understand the software, you may decide to make an initial deposit. First, deposit a small amount so you experience what it is like to lose and win real money.
Only when you have gained enough experience it can be interesting to apply leverage to your trades. It is important to use the leverage in moderation.
Especially with volatile investment products, you can quickly lose the full amount in your account. Another important tip is to only open investments that offer you a favourable risk-return ratio.
You have to get it right in less than half of the cases, to get a good result. When speculating with CFDs, it is important to always use a stop loss.
Because of the leverage, you may otherwise lose the entire amount in your account. It is always advisable to assess your trades. By doing so you can learn from your mistakes and improve your trading strategy.
Are you looking for a more passive way to invest? Then eToro's social trading platform might be a good option!
In the next part of this guide we will discuss how you can make money on autopilot by using this functionality. At eToro you also have the opportunity to trade socially.
This is an interesting option that allows you to take advantage of the knowledge and skills of other investors. In this part of the tutorial we look at how you can best take advantage of this opportunity.
Within the eToro software you can visit the News Feed. Here, traders share their opinions and experiences. If you have doubts about an investment, you can spar with other investors there.
This is a useful addition that does come with a disclaimer. On eToro you can find many amateurish investors. These investors do not always take the various factors that can influence a share price into account.
It is therefore important to make your investment decisions based on multiple factors. An interesting option for novice investors, is the ability to copy other traders.
On eToro, anyone can share their trades with other investors. Investors that are very successful and receive many followers receive a commission for their work.
You can find details on any investor you can follow. This way, you can determine whether it is wise to follow the trader.
It is important not to simply copy random investors. Specifically, it is important to choose traders with a longer track record.
By choosing traders with a long track record, you lower the chance of losing a lot of money when the trader goes rogue. Regardless, it remains important to monitor the investments of the traders you follow.
Likewise choosing good traders can be an art. In this part of the eToro tutorial we briefly cover what you should look for when selecting a good investor to follow.
Don't blindly follow the most popular trader. Sometimes a trader has become popular by chance. A popular trader does not always have to be the trader with the best results.
Therefore, always check how profitable the trader is. When the investor has a huge loss one month and a huge profit the other month, the results are not stable enough.
It is also important to check whether the investor sometimes takes a loss. Keeping investments open for too long can work out well for a longer period of time.
In the end, however, one position can blow up the entire account. It is therefore important to choose an investor who is not afraid to take losses.
Also check whether the trader you consider following makes an effort. For example, does he answer questions on his feed? If this is not the case, I would never follow that investor.
If he doesn't bother to answer simple questions, he's probably not a reliable person to follow either. Finally, you have to ask yourself if the trader you want to follow fits within your profile.
What do you want to invest in? How much risk are you willing to take? If you think the trader is right for you, you can start following him.
It is advisable to do this with a small amount of money in the beginning. If the results remain positive, you can slowly increase the amounts you invest.
What is the maximum risk you want to take at eToro? Past performance is not an indication of future results. Would you like to invest with eToro?
Then you must understand how stock trading works. In this part of the tutorial you will learn how to predict the price of a share yourself.
Before you start investing in shares at eToro, it is important to remember that a share price is created by people like you and me.
The stock market always balances out. The asking price on the stock market is the price at which the number of buyers and sellers are equal.
When the number of buyers increases, the price increases. When the number of people who want to buy the share falls, the price drops.
When you start investing in stocks, it is therefore important to consider what the average investor would do. In this part of the tutorial we take a quick look at how you can predict the price development of a stock.
The first factor playing a major role in determining the price of a share is the general market condition. If the economy is doing well and investors are euphoric, prices can rise sharply.
Extreme examples include the corona crisis in and the credit crisis in These are big events that have a huge impact on the economy.
Many investors are amateurs and they quickly panic. In these kinds of situations, you see that people dump their shares en masse.
The share prices can then suddenly fall enormously. For example, in the graph above, you can see how strongly the Dow Jones crashed after it became clear that the corona crisis was going to have a huge impact on the economy.
After such a crash, you often see a smooth recovery. As a smart investor, you can benefit double from these situations. You can short sell shares on the sharp drop and at the same time buy shares at a discount.
Of course, not all shares follow the market one on one. It is therefore also important to research the company behind the share. During the corona crisis, for example, you could see that some companies had a much tougher time than others.
For example, companies that live off tourism are doing terribly. Planes are grounded and it is uncertain when it will be possible to fly anywhere.
You can see the share price of Air France KLM during the first weeks of the corona crisis in this graph:. At the same time, you can see that some companies benefit greatly from this crisis.
Netflix shares, for example, are doing very well. With more and more people stuck at home, people are looking for alternative forms of entertainment.
In the chart below you can see that the corona crisis has been excellent for Netflix:. As an investor, it is therefore always important to keep your cool.
Avoid taking emotional decisions and buy or sell shares based on proper analysis. In general it is wise to trade with the trend as much as possible.
In the next part of this tutorial we will teach you how you can deal with the different market conditions. Before you open an investment, it is always advisable to examine the market conditions.
You can examine market conditions on different timescales. When you are an active trader you look at shorter periods than if you are an investor for the long term.
When you start investing, you may have to deal with three types of trends. The first type of trend is the uptrend. During an uptrend you can see that the price is mainly moving up.
Of course, things don't always go well. Sometimes you see that a share is mainly falling. We are then talking about a downtrend.
In some cases, there is indecision. We call this a consolidation. The share price then mainly fluctuates between two levels. It is important to time your trades well.
Even in an uptrend, a share price won't just move up. An impulse up is always followed by a retracement down.
And precisely in this downward movement it can be attractive to buy. Of course, you must be careful that the trend does not reverse.
Nothing rises forever and good times are regularly interspersed with bad times. By using a stop loss, you prevent yourself from being stuck with a bad investment forever.
Under the Trading section are shown a series of statistical data on the performance of the trader. All data are really very useful, as they serve to understand the operational style of the investor you are considering to include in your people-based-portfolio.
Not many, but they are all very significant. Profitable : percentage that identifies the amount of profitable operations over the total.
Average Profit, Average Loss : always in proportion, the average size of gains and the average size of losses. With these values you can immediately realize if the trader on average in each transaction loses more or less of what he earns.
As explained even in the Social Trading course, this value should be considered with the Profitable figure, to understand the true capacity of the trader to generate profit.
Asset Bar : it graphically identifies the quantity, and the proportion between them, of assets with which the investor has worked.
Frequently Traded : as the last item in this section eToro identifies three instruments on which the investor has worked the most the most frequently traded.
Of these it shows:. Another interesting section, with very useful statistics to be able to make evaluations, is the Additional Statistics.
There are indicated:. Trades per Week : how many operations the trader opens approximately every week. This data can give information on his trading style, especially if used in comparison with other values.
Average Holding Time : how long an operation is kept open on average. Profitable Weeks : expressed as a percentage, it identifies the amount of weeks, on the total, he closed with a gain.
The calculation considers the value of the account at the end of the week evaluating the value of open and closed transactions. If the value of the account is higher than the previous week, then it will be considered positive, on the contrary it will be considered negative.
All the data we will now see can be set according to different time period, that are Current Profit, this week, 30 days, 3 months, 6 months, 1 year, 2 years, 3 years, selectable from a drop down menu at the beginning of page on the right.
Selecting Current Profit you will observe the composition of the investment portfolio of the trader in that precise moment. Selecting instead 30 days, 3 months, etc, the result will be given by an average of that last period.
Here you can see, for the period under review, how the trader was placed, in percentage terms, on the various assets, considering also liquidity money not invested he has maintained to deal with any negative situations or to invest more.
The Performance option shows the percentage of profit or loss of the positions taken by the trader, divided by underlyings, relatively to the reference period, to have a graphical view of how many complementary instruments were used and how they were individually profitable.
In the event of a trader who has invested in many assets you can find two arrows on the side to scroll right and left and view all the underlyings.
It might seem a mistake but is actually a simple rounding of very small figures. As mentioned before, on time period different from Current Profit, the Available Balance is an average value.
To access the Open Trades section you have to position the mouse on the Portfolio label and select it from the drop-down list.
By default the view is set to Flat , which means displaying them in a simple general list. If the trader you are analyzing is using Copy Trading a lot, replicating transactions from other traders, with the Copy Trader view you can see all the transactions grouped by investor that generated them.
Here is the list of the last closed transactions , in any case no later than 3 months. For example, if a trader operates with 10 targeted operations per month, in this section you will find only 30 operations visible.
This is for sure one of the major deficiencies of eToro. Other companies ZuluTrade among all have made available and even downloadable the total list of operations performed by the trader, because, beyond any other parameter, these are the elements with which an investor can really, if he wishes, deepen the study.
Did you know that thanks to Social Trading you don't have to be a Trader to earn like one? The first thing to note is the ability to change the time frame.
With the Drawing button you have access to all the graphical, technical and analysis tools. Such indicators usually are used on trading charts, such as on the chart of a currency pair.
However, someone may try to play with some and observe the performance of a trader from a purely technical point of view, with some oscillator, for example with the Bollinger bands.
With these options, you can literally write your notes directly on the graph, wherever you prefer, perhaps to graphically remind the happening of a specific event Brexit?
Greece Debt Crisis? NOTE: To delete any item you entered in the chart just click on it but with the right mouse button.
This feature can really come in handy by placing data and performance in a totally different perspective than usual.
In conclusion, this chart is extremely useful to work on one of the most important parameters of risk analysis, that is the drawdown. The yield is always linked to the risk.
Usually, the greater the risk and the greater the possibility of return. So the first goal of an investor, be it a social trader or other nature, it must be precisely to identify, understand the risk and then try to limit it as much as possible.
In other words, your first priority should be to identify the extent of the risk to which you are subjecting your account.
Obviously, when you will know how to identify and manage the risk of your portfolio, the next step will be to find the investment the traders who, with the same risk, will give you the highest returns.
The risk of a people-based-portfolio is related to the operational style of the individual investors you will decide to replicate and their total composition in your portfolio.
One of the fundamental elements to understand the riskiness of the investment strategy used by the trader is precisely the calculation of drawdown.
Drawdown is the intensity of the reduction in value of a capital sum, in percentage or absolute terms, and may be referred to a single order or to the entire strategy.
One of the first things we do when we get in touch with a Social Trading company is indeed to verify if it shows this data correctly, or otherwise, to understand in detail how it is expressed and why.
At eToro you can find the drawdown figures in the Statistics section of the profile of a trader or Popular Investor.
The new formula uses as data the assets at the end and start of the day which in eToro corresponds to the value Account Balance, plus or minus the equivalent of open positions in the market in Net Profit , while ensuring that this value is distorted by any deposits or withdrawals.
It is certainly useful to see different time horizons. Observing this value to one day, one week and one year, makes you realize the possible fluctuations in the account for different time frames.
But the problem remains that these values are not accompanied by a calculation on the entire operating history of the trader, which would give you the correct maximum DrawDown figure, which is in fact the most important value for determining the operational risk of an investor.
Despite the clear improvement of eToro in data sharing, this is still a legacy of the old style, where oversimplification was at the expense of effectiveness and usefulness.
Being an investment of money, it would be far preferable to have access to all the data available. Also, what you can notice is the absence of the most important figure, the overall Max DrawDown, which is the maximum negative event ever occurred since the beginning of operations of the trader up to the moment of your analysis.
One year history is certainly significant, but if the investor has an operating history of five years, it becomes an unrepresentative figure.
For example, it might be that an event that really put under stress the operational strategy of the investor occurred three years ago.
EToro has recently introduced a new Charts section you can easily access from any trader profile. You can view the graph up to a depth of two years.
This means that, manually, we can see and calculate the Max Drawdown of the last two years. Click on the button to enlarge the chart. Then click on the button to activate the cursor to visualize the values of the point on which you position.
Now, with the two values in hand, to understand how much the Drawdown percentage is, you can use a percentages calculator there are many on the internet , or you can also do it on your own.
As you can see from the first image of the lesson, eToro, for Noa Trijbox, shows an annual drawdown of You can understand by yourself the importance of working in this way in order to achieve the most truthful data possible.
Once you understand how to analyze an eToro trader to grasp its real potential, it is time to learn to find them. There are thousands of traders on eToro, which is why learning to filter them and quickly find the most interesting ones can help us considerably in building our strategy and our investment portfolio.
From direct experience, relying on the traders suggested by eToro itself is absolutely not a good strategy. When a trader rises to the honors of the chronology and of the eToro ranking for the great performances, most of the time also means that the risks incurred to obtain those performances have been high.
Given the beauty and also the complexity of the topic, we have created a very detailed tutorial apart that will guide you step by step to the research and discovery of the best eToro traders.
Here it is: the best eToro traders to copy. Here instead we proceed with the discovery of everything you can do with the eToro trading platform.
Click here to open your eToro Account and discover the new platform. The first thing to say is that in every new eToro page, both in your profile page or anywhere else, you will always find two sections: the upper bar and the menu on the side.
Now, regarding the menu on the left, instead of continuing in order of appearance, it is convenient to talk about the various elements in order of importance.
For this reason, the first thing to talk about the new eToro Platform is definitely the Portfolio. By far, the thing to be more careful about is the mode selection, which can be Real or Virtual Portfolio.
You can select them by clicking the drop-down menu as shown. Real Portfolio mode is basically the same as the old eToro OpenBook, which is the public front of your profile, visible to all the users of the community.
This means that users will only see your moves so your stats made with real money. With Virtual Portfolio mode , however, you have the ability to operate with the same functionality of a live account, using an initial capital of 50, usd.
However, everything you do will not be publicly shown in any way. What is new from the old to the new eToro platform is that now you can change directly and easily from one mode to another, directly from your platform.
The functionalities of control, connection, management of traders and the opening of new orders are completely the same in both Real and Virtual versions.
This means you have to be very careful and always make sure about the mode you are operating in, or you could run the risk of opening some trades or connecting some traders on the Real account when you planned to do it on the Virtual one.
Instead, the upper space is dedicated to the list of all open positions, with some details on the investment and the performances. Here you can find the trades opened by you or those replicated by other traders.
Just by clicking on the name of the trader you can open a list with all the operations replicated by that specific investor and still in the market.
With this views we can see all the details about the opened trades as well as close them if we wanted to. This does not mean that, in the event of proximity, we must increase the value so as to allow greater losses.
The situation is identical to that of a trader who moves the stop loss of an operation to prevent it from being executed and not account for the loss at that time, hoping for a lucky break.
Let me tell you, luck does not exist in this field, and moves like this are just a perfect formula for failure. In the Advanced eToro course we will explain precisely how to use these security tools.
Once they are set, according to certain logic and certain calculations, they must remain so, otherwise they would not have sense. In general you can:.
With this button you can enter the view of your portfolio as a graph. The first Allocation Chart shows how and how much you have invested your money in three main categories:.
We at InvestinGoal have always been in favor of maintaining a share of the portfolio as protection margin, so as not invested capital the Assets value in the case of this chart.
A chart like that can make you quickly see the size of this margin. By using the box on the right of the chart you can look at the detail of each main category.
Just click on Markets or People to view the two charts which show the percentage of capital invested on your own in currency, stock, index or commodity markets, and for the other on individual traders.
From there, we can go even further and, always clicking on each element, look at the chart with the individual CFD products or, in the case of a trader, return to his screen, just seen before, where there are listed all the trades opened by him.
To summarize and clarify, with the Allocation chart you can make a distinction between investments personally made by you Markets section and those made by all the traders you are replicating People Section.
Within this section you can find the lists of any trading orders already included in the platform and pending to be executed, both yours and those of all the traders that you are replicating with the Copy Trading.
The last of the pages in the Portfolio section is History. We have already said how important it is to observe the moves made in the past to try to understand what to expect from the future.
Periodically, it is essential to look at your history to understand what has been done, the operations that have been opened, by whom, how they were closed, if there were problems, etc.
The old eToro was absolutely no good in this. Whether you wanted to look at the trade of other investors, or you wanted to view those in your demo account, eToro limited the history just to the last operations, but no later than 3 months.
Instead, today, with the new eToro, they provide the last three months, the last six months, and finally a full year of History.
This is definitely an improvement and an opportunity not to be missed for all the investors. Instead, the eToro Watchlist Section is a great tool to track everything you are interested in, and not only traders you are replicating.
By creating a Watchlist, you can view the main data of the elements price, variations, sentiment and also have the trading buttons or connecting buttons in the case of people at hand, without necessarily having to go to the related sections.
The reasons to create lists of favorites are many. Here are some types of lists you could create:. These are just some ideas to give you a hint on how to use this useful tool of eToro.
You can be creative as you please, even because you can create hybrid lists, containing both people and financial instruments. In this part of your platform it really seems like using a social network rather than a trading tool, and indeed it is.
They are divided into two modes, which can be accessed from the drop-down menu in the upper right corner:. The first at the top is the amount of your assets , which corresponds to the Account Balance the capital not invested plus the Invested Amount plus the Net Profit.
The other element, instead, is a sort of quick window on the Portfolio, on your Watchlist and on the People and Markets searching tool.
By clicking on the pie chart on the left you can see the Top Gainer or Losers, i. With the star symbol, instead, you can quickly make some fast searches, viewing in particular the first Basically, the most important parts of your platform which can be accessed from the menu on the left are those described above.
We have already dealt with the People section for the eToro traders search and the eToro Markets section in their respective lessons.
In the Other section there are the other non-core but still important functions. In particular:. Very last note. If you really did not understand something or you missed some details, on the bottom right you have the ability to chat directly and quickly with the eToro customer service.
To really learn to use eToro, you need to study and thoroughly understand the forms for executing the trading orders if you want to do it by yourself with Social Trading and for the automatic replication of other investors if you want instead to invest with Copy Trading.
You have to deepen this point because, as already said, the operational approach of this broker is not conventional to the standards, and this, for some, at first glance may create some confusion.
Whether you are in the Market section, or in one of your WatchLists, trying negotiating any instruments currency pair, share, index, commodity , you will be presented with a form like this.
The top shall indicate whether the transaction you are about to perform is a buy or sell. If you were wrong and wanted to enter a transaction on the opposite direction, you can do it immediately by clicking at the top of the form.
On the side you can find a small drop-down menu to set the transaction as a market order Trade , instantly executed at the current price, or as pending Order , to be activated upon reaching a certain price.
Selecting Order, in fact, the form will show another row to specify the price at which you want to do the transaction Rate. Here you have to set the capital of your account you have decided to allocate to the trading operation.
To a person accustomed to the standard forms, the Amount value corresponds in fact to the safety margin blocked by the broker to allow you to open the transaction.
Just below that to the right, eToro indicates what percentage of the total of your capital the entered value corresponds. Below, in the middle, you can change the multiplier.
The value you set here will be multiplied with the Amount value to determine the actual amount of units invested. Always remember that the higher the multiplier, the greater the leverage applied to the operation will be and consequently the greater the risk too.
You can choose to work in monetary terms or with more traditional price levels. In the case of monetary value, below the amount you have set, you can find the corresponding market price at which the transaction will be closed, to give you a precise indication of the profit or the loss determined by the invested capital and the applied leverage.
In both views, eToro also indicates what percentage of the invested capital the eventual win or loss corresponds. Below the Open Trade button eToro finally shows how much the Rollover interest will amount, both daily and weekly if the transaction is kept open during the weekend.
As you will notice, since the Rollovers interest are calculated on actual invested units, by increasing or decreasing the invested amount or used leverage, the interest will increase or decrease in turn.
After searching and founding an investor that shows those features that meet and are consistent with your investment portfolio, all you have to do is enable the Copy Trading function on him by clicking the Copy button.
This form, at the top, shows the photo, the username and the real name of the trader in question, together with an indication of what was gained or lost as a percentage over the last three months.
In this new eToro, Instead, you can navigate the same way in both modality, Real or Virtual Portfolio. You must therefore be sure of the mode you are at that moment.
To quickly check it, just look down, in the strip where all the data of your capital are displayed. Here you must enter the amount you have decided to subtract from your account available balance and to be invested in the activity of replication of the transactions executed by the trader in question.
After setting this value, eToro will calculate and show you very important information, which are:. The last value is vital to understand what chances you will have to replicate all his transactions.
In the lessons of the eToro Advanced Course we will explain in detail all these things. Below the section of the capital to invest, you can set a maximum loss on that capital, at which the replication activity will be stopped automatically.
If you activate this feature by entering the flag, when you will start copying, eToro will open on your account all the positions the trader has in his account at that time, but obviously at the current market prices.
In the classic platforms, to open a trade, the user has set upstream the leverage that should be used for all the trades, and then he choses the units he wants to invest lots, mini-lots, micro-lots.
According to the capital in his account, these factors determine the amount of capital that the broker will block making it unusable until the closing of the transaction or until the opening of an operation of equal size but of opposite sign as a safety margin.
EToro, instead,turns the whole thing around. Being margin a blocked part of the capital, which means that is no longer usable until the closing of the related trade, the margin can also be considered as a invested capital, which indeed it is.
So, the user must decide what capital he wants to invest, then choose from time to time the lever he wants to use, and this will determine the units that will be actually invested in that transaction, or in that investor.
Having said that, in this lesson we gave you a smattering of all the necessary information to execute the opening of a trade or start replicating all the transactions of an investor.
With the lessons of the eToro Advanced Course, instead, we will talk about how, when and why it is useful to copy a transaction of an investor, or directly replicate all his strategy on the basis of his operational features, and how these can work in a wider portfolio composed by more investors.
In our case, also as regards to eToro. In other words, diversification means investing on many fronts, on multiple instruments, different in nature, characteristics and degree of risk, so as not to depend on the fate of a single investment.
What matters most is to consider their nature and the correlation between them. A positive or negative correlation between two instruments is the tendency to move respectively in the same direction or vice versa.
In case of negative correlation, instead, the profitability of the portfolio could be affected, because the profit of an instrument could be equal to the loss of the other, or vice versa.
A proper portfolio diversification leads to the obvious benefits of reducing volatility and protection against high drawdown risk.
The first goal of a diversified portfolio, then, becomes to break down the overall riskiness of the portfolio by controlling its volatility and the potential drawdowns.
Next, the second goal must be to look for the best investments that, with the same risk, will allow the best returns.
In other words, first of all we have to understand how to protect our investment, and ensure that it can survive in times of market turbulence.
After that, we can look for the best opportunities to be included in the portfolio to try to maximize profit as much as possible, but without increasing the risks.
In recent decades a lot has been written about the correlations between the various assets equities, bonds, indexes, commodities, currencies, etc.
Some of these theories may be very useful, since with eToro you can also invest in stocks and commodities, or replicate the operations of those who do.
However, in a People-Based Portfolio , i. The founding tenets of the diversification of a People-Based Portfolio are essentially 3.
Investing with Copy Trading means to replicate the transactions of other traders. Having thousands of them to choose from, it becomes useful thinking about their operating style, the way they operate, the strategies and instruments they use , in order to diversify the choice of traders to be replicated even by these factors.
In the Social Trading Course we have dedicated a lesson to the main categories of traders you can find in the companies of this sector. Given the fact that there is not one identical to another, and many times a trader is actually a mix of two categories, the most important thing not to overlook is always the control of risks and the portfolio protection.
This means that, beyond his operating style, a trader should always observe certain logic that makes him reliable for an investment. Not all the Social Trading companies offer the possibility of implementing this type of diversification.
With ZuluTrade you can only trade on Forex, and in that case you can only diversify the types of currency pairs.
For example, you can diversify by choosing specialized trader on currencies like sterling or yen in order to not be too unbalanced only on euro or dollar.
With eToro you can do the same, but also and above all, thanks to the CFDs , you can diversify on traders and investors who use completely different asset classes such as stocks, indexes and commodities.
Being a Social Trader, or, in this case, rather a Copy Trader, your task will be to identify the investors experienced and capable in their respective asset classes, and allocate them in your portfolio as well.
Each trading strategy, no matter how good the trader is, suffers moments of negative variance caused by both the characteristics of the strategy and those of the underlying.
Copying different investors who work with different strategies on different underlyings offers the possibility to exploit the winning moments of a strategy on a given market in compensation to more difficult market moments for strategies that work on other underlyings.
Third and final main element of diversification in Social Trading is the financial leverage. In this case we mean the leverage used to replicate the trading signals generated by the traders and investors included in your portfolio.
The first point to remember is that overdoing with leverage is never advisable , because it can cause major problems in the portfolio on both volatility and excessive drawdowns.
So, even diversifying, you should never go beyond a certain limit. Second , the leverage must be distributed according to the operating characteristics of the strategy of the trader, considering how much it is strong, constant and risky.
Within the bounds of common sense, the risk may be leveled with a lowering of the assigned leverage, in order to make it conform to the general parameters of the portfolio and not create imbalances.
You must always be very careful even with traders who seem very reliable, and do not ever overdo with the leverage.
Although they have shown reliability, a sudden error or malfunction of the strategy, combined with a high leverage ratio, may cause great damage to the portfolio.
Anyway, even though the study and the deepening are fundamental, only a certain degree of direct experience can help to make optimal choices in this field.
However, experiencing with your eToro live account is definitely not advisable, which is why the eToro virtual portfolio becomes really important, because you can even simulate the actual movement of money and the degree of volatility, drawdown and the portfolio overall risk before you start.
The first piece of advice we feel we can give you, before starting to invest real money, is to reread all this tutorial and our other content on eToro a second time at least.
When you feel confident, you can move on to the last step: opening your eToro live account. Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.