Hi Carlo, I’ve been busy for a while but can’t resist offering a comment here!
Let’s get the warning disclaimer up front - anyone who knows me will be well aware that I am not a fan of social trading platforms and, in my opinion, for good reason – I will explain more later on.
So we have here an invitation from eToro to invite your friends to join the trading community by referring them to the trading platform.
That all seems innocuous enough doesn’t it?
Even more so when you go over to the site itself where it visually appears far removed from most other trading platforms with their graphs, numbers and complex language. It’s glossy, enticing, attractive, well-crafted and alluring even.
It gives a friendly welcome, not unlike an online game, that it is a trading platform with a strong social character, great for trading with friends and family and makes trading accessible to the average Joe – all very cosy.
The website promotion reads simply and favourably stating: “… Join millions who’ve already discovered smarter investing by automatically copying the leading traders in our community, or get copied yourself to earn a second income. Investing in the financial markets has never been easier…”
The tentative first-timer will feel even more assured in noting that it is regulated by FCA.
Most will ignore, or eagerly click past the bottom of the page small text warning that - “… CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage …” – after all how many of them will even know or care what CFD’s are? So most will not click through to read the other warning that – “…66% of retail investor accounts lose money when trading CFDs with this provider…”
eToro is a relative old-timer in the social trading industry and it has been successfully delivering its services from 2007. From a legal standpoint, there nothing to have any real concerns over as already mentioned they are regulated in the UK as well as several other jurisdictions.
So should you be worried? Is it a scam? No, not a scam for sure but still a hard sell to the vulnerable. If pushed I would put it akin to online gambling sites, offering attractive lucrative wins when in reality the odds are against you.
(notably my due diligence uncovered links behind the public facade of this online trading platform with real-time gambling and casino enterprises - nothing wrong with that at all, but nonetheless an interesting association and perhaps a clue to their real business model!)
So what exactly are my fears or concerns?
Well, in all the above lies my difficulty with this type of so-called social trading site. It masks the inherently risky nature of trading. The eToro advertising makes it look easy with everything presented through a cool slimmed-down platform.
The real dangers and complexities of trading are played down with the apparent fun aspect, if you can call it that ramped up.
Trading is made to look like a game that anyone can play and more importantly win at – all very clever marketing. The desire to get rich quick is the lure – whilst hiding the fact that this is also the surest way to lose money.
It preys on the greedy and the gullible - there are a lot of them out there – offering a ‘lot of leverage’ ‘get rich quick’ approach which is doomed to fail for most amateurs whilst any serious professional will be out on their own far away from this type of platform - so certainly not in there for you to copy!
It’s a nice very clever fun idea but dangerously dressed up as a serious way for the amateur to make easy money when the reality of that happening is somewhere between slim and zero.
Which brings me to why here and most definitely in the case of ‘social trading platforms’ that I have to apply the words of Warren Buffet when he stated that “… the stock market is a device for transferring money from the impatient to the patient.” There are no short cuts to a quick win!
Let’s face it, if trading was easy everyone would be doing it.
In 2018 the world’s top funds made profits in the region of 20% for their investors - these were a very small percentage of funds being managed by very experienced traders with the majority of fund actually making losses.
The richest funds in the world make on average in the region of 15% - 16% per annum. With the minimum investment on eToro standing at $200, if you were by chance lucky enough to keep abreast of the best professionals with this level of investment you would reap the vast return sum of $30 to $32 minus fees - not exactly rich pickings. To gain more you would have to invest much more, but would such an amount be funds that you would also be happy to lose completely?
Let’s go back to CFDs - eToro is a platform that actively promotes contracts for difference, or CFDs, derivatives that allow investors to speculate on the price of cryptocurrencies – what is hastily overlooked and understated is that CFD trading is more for the experienced professional than amateur traders.
In an unregulated, ultra-volatile market that few investors understand, eToro injects even more risk into the mix. So combining CFDs with cryptocurrencies is seen as reckless by many as stated by Rainer Lenz, chairman of Finance Watch, a Brussels-based public-interest organization in 2017.
Notably the head of eToro’s London office denied that mixing CFDs and cryptocurrencies was harmful to retail investors.
What is also of concern for me is that I have noted many people reporting problems with the service when trying to get their money out. It can, allegedly, take 3-8 working days to receive your money. If I couldn’t get my money out the same day I would be looking into other options and fast.
So what are your experiences here - has anyone ever taken out more than they deposited??