Tuesday, May 10, 2016

Trading on eToro Review



I have been trading with eToro for the last 3 years and have found eToro to be great way to scratch the trading itch without having to risk large amounts of capital - thanks to its finely-tuned trade ticket.  Details on how best to get the most out of eToro trade ticket I have outlined below.  At the end of this article I have included a list of (low-key) performers on eToro you should consider following or copying.

You can start by registering with eToro. I recommend starting with the minimum deposit of $200 and using the 1% risk rule of available capital; this means if your starting capital is $200, then your first trade will risk $2. So in risking $2, what is the initial position size to use?

The eToro Trade ticket will default to a standard $25 lot, with a 50%(!) stop, usually on x100 leverage. You will not want to enter your first trade this way. First thing will be to change the leverage to x1, then change your stop loss to $1 just to avoid any errors.

The short video (no audio) will show you how to use the Trade Ticket to calculate the trade size based on your chosen stop:

1. First set the stop you wish to use
2. Set Leverage to x1
3. Adjust Levarage and/or Amount until you get to your selected risk (here, $1).



The Golden Rule is to only ever risk 1% of available capital.

If you can follow the Golden Rule you can never burn your account to zero. Why? Depending on your starting capital, and by following the Golden Rule, you will reach a point where you can't put on a trade because you won't meet the minimum requirements for a trade. The one exception to this is if there is an external shock to the market, such as the Swiss Franc adjustment, where there is a big gap. This can lead to a greater than 1% loss, but if you manage your trade amount and maintain a low leverage you can mitigate against this, even if this means a larger than expected pain. Whole companies (Alpari UK) went down on these shocks, but your account doesn't have too.

What does the Golden Rule look like in practice?
  1. You open an eToro Trading Account with $200. 
  2. For your first trade you are allowed risk up to $2 (1% of $200).  You decide to enter a EUR/USD trade with a Stop Loss of $2. To achieve this $2 risk your trade has a starting amount of $50 and used x10 Leverage - calculated by following the steps in the video above.
  3. You next decide to enter a DAX trade, so how much can you risk?
  4. Well, your first trade tied up $25 of your starting capital, so you are now left with $175 ($200-$25). This means your next trade can risk $1.75 (or 1% of $175). Here, you take a $50 trade at x1 Leverage, with a $1.75 Stop Loss.
  5. You then consider a third trade. Well now you have $125 ($200 - $25 - $50) left in your trading account, so your next trade can only risk $1.25 as a Stop Loss (1% of $125). You take a look at the market and find no suitable trade which would allow for a $1.25 Stop Loss, so you decide to sit on your existing EUR/USD and DAX trades to see what happens.
As a helpful guide, the table below shows how much leeway you can take for a $1 risk, at different trade sizes of $25, $50 and $100, for a range of assets on eToro. You will notice for certain Leverages it isn't possible to risk $1 at certain trade sizes; for example, there isn't sufficient room based on the spread to risk $1 on a $25 EUR/USD trade at x50 leverage, but many do try to do it...



Remember, if for your first trade, the amount of capital used was $50 to generate a $2 risk, then your second trade will only risk $1.5; i.e. 1% of $150 ($200 - $50).

Start by trading assets like FX which have tighter spreads, DAX is good too, at x1 and x2 leverage and don't go beyond x 25 leverage, but always stick to the 1% capital risk rule.

Never let a trade lose more than 50% of the capital size of the trade. When you copy traders it's not uncommon to see traders rack up 300% losses, albeit on a $2 trade, but it's bad practice.

Still confused. Try following and/or copying some of the low risk traders on eToro. Below are details of my trading.


February's loss was particularly galling as January's lows marked a capitulation, which led me to enter a long stock trades, but the volatility was too high for them to survive their stops.

I would also recommend going it alone with some, if not all of what you deposit. For those who want to go it alone, you can follow my postings on Stocktwits or Twitter for ideas and independent opinion.

Here are eToro traders with solid two-year performance on low risk. Don't be concerned by the lack of copiers for these traders, they are doing things right - away from the limelight:



Be Realistic...

You are not going to achieve 10% or 25% gains a month; if you achieve 10% a year you will be outperforming 80% of professional traders and hedge fund managers.  For a $200 account that is an annual return of $20. This may not be much in real terms, but if you can achieve this and want more, then look to increase your available capital to trade - but don't look to increase your risk. eToro regularly run Deposit Bonuses for new and existing members throughout the year.

As a final note, do not copy anyone who promises or sells to you a return on a monthly basis. That's pure BS which will see your account turn to $0 in weeks.

Remember - Golden Rule - 1% of available Capital.  No cheating!!!

Now Go Get Started Here.


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