Invite your friends to experience eToro
Investment products offered by eToro include contracts for differences (CFDs) whose underlying assets are currencies, stocks, commodities, indices, exchange traded funds (ETFs) and cryptocurrencies.
Hi Carlo, Iâve been busy for a while but canât resist offering a comment here!
Letâs 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 â 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 doesnât 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. Itâs 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 â all very cosy.
The website promotion reads simply and favourably stating: â⌠Join millions whoâve 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 easierâŚâ
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 - â⌠CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage âŚâ â after all how many of them will even know or care what CFDâs are? So most will not click through to read the other warning that â ââŚ66% of retail investor accounts lose money when trading CFDs with this providerâŚâ
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 â all very clever marketing. The desire to get rich quick is the lure â 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 â offering a âlot of leverageâ âget rich quickâ 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!
Itâs 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 âsocial trading platformsâ that I have to apply the words of Warren Buffet when he stated that â⌠the stock market is a device for transferring money from the impatient to the patient.â There are no short cuts to a quick win!
Letâs face it, if trading was easy everyone would be doing it.
In 2018 the worldâs 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?
Letâs 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 â 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 eToroâs 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 couldnât 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??
I have a colleague who âadmitsâ ( that is the right word in this case as he was slightly embarrassed to tell me! ) that he dabbles in social trading and is earning about ÂŁ500/ÂŁ1000 every month â of course he had put in a substantial amount of money to start with and he is also an experienced trader in his own right! So not exactly mega-bucks or enough to live on for sure, but enough for a little pocket money.
But, he is a rarity as most other stories I have heard from others tend to be of overall losses.
eToro is lots of fun - and thatâs how I view social trading platforms, not unlike the âFacebooks of tradingâ. I donât take them too seriously and would only indulge if I could handle seeing my account wiped out completely.
My main reservation with copy trading, which after all is what most people on these type of platforms tend to explore â and is the âtechniqueâ that is much vaunted by the platforms themselves as the way to easy fortunes - is that youâll always be one step behind.
When you attempt to buy, youâll be buying at a higher price. When you sell, youâll be selling at a lower price.
I expect there are well-run and well-intended social trading platforms, and within these platforms there will be always be knowledgeable and well-intended signal providers from whom you can learn, maybe even profit from as a follower if you get lucky!
All my views here apply particularly to beginner traders as they (in my opinion) are the ones most likely to be tempted to join these platforms.
Consequently these beginners will have a hard time discerning between the few profitable signal providers with the right platform combinations against the many high risk unprofitable signal providers with their respective platform combinations.
My advice to beginners would be, it is too expensive, too risky and in real terms it is more akin to gambling than investing â so only join the game and put in money that you donât mind seeing the back of in the worst case scenario.
Just google the phrase ââŚmake money on eToroâŚâ, or something similar, and see what comes up. There are a lot of self-promoters who are already âin leagueâ with the social trading platforms and are on the way to making their money by surfing on your investment - thatâs why they are eager to portray the image of âeasy moneyâ.
By this I mean, as you will note from the eToro platformâs own advertising, if these self-promoters become an eToro Popular Investor they can earn a 2% annual fee, or commission if you like, so if a 1,000 people copy them each with an investment of ÂŁ1,000 each (i.e. a total of $10 million invested) they can earn an additional $200,000 a year!
The traders you occasionally read/hear about are these so-called top traders, they are at the top of the financial food chain and have already, through their own hard selling on the side, built their own online financial businesses through these platforms.
So if you are going to join in the fun first make sure you are clear on a few factors.
Scenario 1: What is your own objective? Do you follow blindly other peopleâs opinions or is this a part of your own trading strategy? Are you an inexperienced novice looking to get rich â so likely to follow other traders blindly missing all the signals. Will you trade as often as possible without any self-learning? Will you be bothered to first learn how the markets work and how to focus on the long term?
If this is you, and you donât have an inexhaustible supply of funds, then you probably wonât last the course and will have your accounts blown away very quickly.
Scenario 2: Are you a semi-experienced trader learning to develop your own strategy? Keen to learn and considering this as a long run? Possibly still lacking a little confidence in your own judgement and look for the support of a more experienced trader? Able to determine what is a good recommendation and what is a bad one, only occasionally following other traders in a bid to accelerate your own learning curve?
If this is you then you will certainly last longer than âScenario 1â and may even become a reasonably competent trader with a moderate income.
Oh, and to answer your question RickTheMac - yes I have, just, but only as part of an experiment and certainly not something I would rely on for a living.
Bon chance!