When it comes to online investing and trading, social trading and copy trading on eToro are terms that frequently come up.
For beginners, it can be confusing to know what the difference is between these two concepts.
Both social trading and copy trading allow users to connect with other traders, but they work in slightly different ways.
This article will explain everything you need to know about social trading and copy trading on eToro.
We will look into the benefits of each, how they work, and help you understand which method is best for your trading goals.
By the end of this article, you’ll have a clear understanding of both social and copy trading, how eToro fits into these concepts, and which option might be best for you as a beginner.
What Is Social Trading on eToro?
Social trading is a method of trading where you follow other traders, communicate with them, and observe their strategies.
On eToro, social trading allows you to interact with other traders, share your thoughts, and learn from their techniques.
Think of it like social media, but instead of posting pictures or status updates, traders share their trading strategies and ideas.
With social trading on eToro, you can view the performance of other traders, comment on their trades, and ask questions.
It’s all about learning and being part of a community of traders.
How Social Trading Works
On eToro, social trading is based on the idea of collaboration. This is how it works.
1. Find Traders to Follow
Once you sign up on eToro, you can browse the platform and find traders who have good performance records. You can search based on specific criteria like risk level, trading style, or success rate.
2. Interact with Traders
Unlike traditional trading platforms, eToro offers a social feed where you can comment on and discuss the trades of others.
This allows you to learn from their approaches and gain insights into their decision-making processes.
You can also share your trades and thoughts with other traders. By participating in the community, you can get feedback and improve your strategies.
Benefits of Social Trading
Now that you know the meaning of social trading and how it works, let’s now talk about how this is what you will stand to gain by using social trading.
1. Learn from Other
One of the biggest benefits is that you can learn from more experienced traders. Instead of learning everything on your own, you can gain knowledge by following traders who share their insights.
2. Stay Informed
Social trading gives you access to real-time information about the markets. Many traders share their analyses and updates, which can help you stay on top of market trends.
3. Community Support
You don’t have to trade alone. Social trading platforms like eToro offer a sense of community where traders support each other.
What Is Copy Trading on eToro?
Copy trading is a more direct approach to following other traders. It allows you to automatically copy the trades of successful traders in real-time.
On eToro, copy trading is a feature that enables users to copy the exact trades of experienced traders with just a few clicks.
Unlike social trading, where you actively participate in discussions and share ideas, copy trading involves copying a trader’s entire portfolio automatically.
When the trader opens or closes a trade, your account will mirror those actions, without you needing to do anything.
How Copy Trading Works
This is how copy trading works on eToro
1. Choose a Trader to Copy
When you sign up for eToro, you can browse a list of traders who have a track record of success.
You can filter them based on factors like risk profile, market expertise, and performance history.
2. Allocate Funds to Copy
After choosing a trader, you can allocate a certain amount of money to copy their trades.
For example, if you choose a trader and allocate $500 to copy them, eToro will automatically mirror all of their trades with your $500 investment.
3. Automatic Mirroring
Once you’ve set up your copy trading account, the trader’s actions will be mirrored in your account in real time.
If they buy a stock or close a position, the same actions will happen with your funds, and you’ll experience the same results (gains or losses).
Benefits of Copy Trading
Copy trading comes with benefits as well, and they are:
1. No Need for Experience
Copy trading is ideal for beginners because you don’t need to have any experience in trading.
As long as you pick a skilled trader to copy, you can potentially make profits without needing to understand every detail of the market.
2. Automatic Trading
Copy trading is fully automated. Once you allocate your funds, you don’t have to worry about making individual trades or analyzing the market yourself.
3. Diversify Your Portfolio
By copying different traders with different strategies, you can diversify your portfolio and reduce risk. Some traders may focus on stocks, while others might focus on forex or commodities.
This helps spread out your investment.
Differences Between Social Trading and Copy Trading
The primary difference between social trading and copy trading on eToro is how much involvement you have in the process.
Social trading requires you to be an active participant, interacting with other traders, learning from them, and making your own decisions.
On the other hand, copy trading is a passive form of trading where your funds are automatically allocated to copy another trader’s actions.
In social trading, you can share your insights and discuss strategies, while copy trading focuses solely on copying the trades of others without any active participation from you.
This means that with social trading, you’re more involved in the process, whereas copy trading takes the burden of decision-making off your shoulders.
Social Trading and Copy Trading in Risk Levels
Both social trading and copy trading come with risks. In social trading, since you can interact with traders and learn their strategies, you might be able to make more informed decisions.
However, you’re still responsible for your trades. With copy trading, the risk is tied to the performance of the trader you’re copying.
If they make a bad decision, your account could lose money as well.
In general, social trading offers more flexibility and control over your trades, while copy trading is simpler but more reliant on others’ expertise.
Similarities Between Social Trading and Copy Trading
Social trading and copy Trading comes with unique similarities, which are.
Both social trading and copy trading offer a sense of community. In social trading, you can communicate with other traders, share insights, and discuss strategies.
Similarly, with copy trading, you’re essentially part of a community of traders because you’re copying someone else’s trades, even though you’re not directly interacting with them.
Both options provide opportunities to learn. In social trading, you can ask questions and discuss trading ideas with others, while in copy trading, you can learn from the traders you’re copying.
While copy trading is more hands-off, you still gain exposure to different strategies and approaches.
Frequently Asked Questions
Social trading involves interacting with other traders, learning from their strategies, and making your own trading decisions.
Copy trading, on the other hand, automatically copies the trades of another trader, meaning you don’t need to make decisions yourself.
2. Can I lose money with copy trading on eToro?
Yes, you can lose money with copy trading on eToro. The risk is tied to the trader you choose to copy. If they make a poor decision, your portfolio will reflect that loss.
3. How much money should I invest in copy trading on eToro?
The amount of money you invest depends on your personal goals and risk tolerance. However, it’s recommended to start with a small amount and diversify your investments across several traders to reduce risk.
No, you don’t need any experience to use either method. Copy trading is particularly ideal for beginners because you can mirror successful traders’ actions without needing to know much about trading.
Social trading allows you to learn and interact with others, which can help you get started.
Conclusion
Both social trading and copy trading on eToro offer unique opportunities for traders, especially beginners.
Social trading gives you more freedom to learn from others, share insights, and make decisions on your own.
Copy trading, however, allows you to automate your trading experience and copy the trades of successful traders. The best choice for you depends on how involved you want to be in the trading process.
If you prefer a more hands-on approach where you can learn from others and make your own decisions, social trading might be the better option.
On the other hand, if you want to sit back and let someone else handle the trades, copy trading could be the way to go.
Both options come with risks, so it’s important to do your research and choose wisely.