What is social trading?
Social trading networks operate similarly to traditional social media networks, except instead of sharing photos of your latest snazzy meal or holiday, users share their latest trades and results.
Social trading platforms allow investors to observe the trading behaviour of their peers and experienced traders, and in some cases emulate their strategies.
How does eToro work?
Although not yet a household name, eToro has been around for more than a decade and claims to be the world’s leading social trading network with 6 million users in 140 countries, including Australia.
eToro’s news feed enables users to receive updates from other investors. Users can post information, explain an investment decision, or share any other kind of relevant knowledge with their followers. With eToro you can trade and learn more about stocks, forex, CFDs and cryptocurrencies.
Tools available through eToro
The platform also offers various trading tools and courses for investors who are just starting out. Every trader that signs up to eToro is given the opportunity to practice their strategies with $100,000 of virtual money. This can be a great way for some investors to ease into investing and build their confidence.
Other tools include the CopyTrader and CopyPortfolio which allow users to reproduce the strategies of more experienced investors. Investors who are ‘copied’ can also apply to join eToro’s Popular Investor program, which rewards investors for allowing their portfolio and trades to be copied.
Before deciding if opening an eToro account is right for you, you should familiarise yourself with the fees they charge. Not all fees will apply to all investors and fees will depend on what you are trading. Here are the most common fees that you are likely to incur:
- Withdrawal fee $25
- Spread – will depend on the asset you are trading. For example, the fee for stocks is 0.09%
- Overnight fees may apply
Also, it’s worth bearing in mind is that eToro only operates in US$, so you’ll need to consider the rate of currency conversion, as currency rates fluctuate so will your returns. They also charge an inactivity fee of $10 per month, if you haven’t logged in for 12 months or more.
Fees can eat away at your returns, so it is always best to compare the fees of competitors to decipher if you’re getting a good deal.
Is eToro safe?
eToro is regulated by the Australia Securities and Investment Commission (ASIC) and holds an Australian Financial Services License (AFSL). So, while you should be in safe hands when using the platform, you should also consider the risks involved with trading certain assets. For example, through eToro investors can trade cryptocurrencies, forex and CFDs which are all considered to be high-risk investments. Before investing, consider your own personal circumstances, your investment goals and risk tolerance.
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