About eToro investments

Question

I'm young and planning to start investing early. As a beginner, I thought about going for high risk investments such as the stock market and eToro seemed like a good idea because I figured that this is the best time to lose money in any case.

For those who don't know, eToro is a "social stock network" where you can copy the actions of (a.k.a. follow) other investors, preferably professionals.

Is it safe to put around 3~4k dollars in eToro and blindly following popular people with high return? Is there a risk that I might lose everything?

If you think that's a bad idea then what would you suggest as an investment for someone who is just starting?

Answer 1

For eToro, just like any other brokerage firm, you can lose your entire capital. I suggest that you invest in one or more exchange-traded funds that track major indexes. If not, just put your money in fixed deposit accounts; gain a bit of interest and establish an emergency fund first before investing money that you feel you are able to lose.

Answer 2

This is a very old question, but I think it became more relevant as eToro became more popular due to the change in trading habits caused by COVID-19 pandemics.

This answer is targeted at trading newbies that want to copy traders on a platform such as eToro. It is based on my short experience with using the eToro platform, so I am sure there are many gaps to fill.

I'm young and planning to start investing early. As I'm beginning, I thought about going for high-risk investments, such as stock markets, and eToro seemed like a good idea - because I figured that this is the best time to lose money in any case.

Indeed when being young you can afford to lose more money since you have time to put them back, but this does not mean that must practice gambling on the stock market.

Before starting to trade, take a fundamentals course on trading. Understanding fundamentals is very important (e.g. setting a StopLoss, reading a basic graph with some basic indicators on Tradingview or similar, understanding how much to invest in a single position, how to diversify, when to buy, how to set orders). Also, it would be nice to include some psychology elements because we have biases that are very helpful in other contexts, but harmful when trading (e.g. loss aversion, anchoring effect, confirmation bias).

Anyway, what I want to ask is: is it safe to get around 3~4k dollars on eToro, and start blindingly following popular people with high return? Is there a risk that I might lose everything?

You should not do anything blindly when it comes to money. eToro is honest when it comes to warning the users about the risk:

62% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

I cannot comment on the risk of losing everything due to eToro going bankrupt, but they operate in the EU, so I guess they obey some rules related to keeping the client's money in various banks, with some warranties etc.

I have experience with copying several persons on eToro and I can share the rationale used to pick them. I would use the example of a guy that is investing in a "green" portfolio to provide real values:

1. General risk - eToro computes a general risk for each portfolio (account). Anyone with a risk greater than 6 is doing risky business, so avoid that account. eToro itself forbids such accounts for acquiring more copiers than a certain threshold (number and assets under management amount).

2. Yearly returns - following a guy with more than 100% gains in a year might be tempting, but this most likely means that they were lucky. Typically correlated with a high risk. Try picking someone with a yearly return of less than 100%

3. Strategy - it is important for the person to share their strategy. For my particular example, the guy invests in stuff like electrical car companies, solar panels, waste processing, and similar. This is regarded as a good "fundamental" as we are trying to reduce pollution and people are interesting in investing in "green" friendly companies.

Any change in the portfolio must be shared with the copiers so that they understand what happens with their investment. Read the feed's recent history carefully to find out how they share information.

Do not copy persons that boast about their big earnings and thus setting a high expectation for the future.

4. Portfolio - it is recommended that a particular position does not take more than 5% (value might be different, but the smaller the better). Some companies might seem very promising, but something really bad happens (example) and that takes most of your position invested money with it.

Take a look at the positions in the portfolio to understand where your money will go.

Since you mentioned being young / taking higher risks, a way to limit the losses while having some adrenaline is to set aside a clear amount of money to be used for risky positions.

Example: out of 4000$, you may decide to copy using 3600$ and have 400$ to try high-risk stocks (and do not go beyond that money).

Side note: this video grasps most of what I have said.

Answer 3

If it's money you can lose, and you're young, why not? Another would be motifinvesting where you can invest in ideas as opposed to picking companies.

However, blindly following other investors is not a good idea. Big investors strategies might not be similar to yours, they might be looking for something different than you. If you're going to do that, find someone with similar goals.

Having investments, and a strategy, that you believe in and understand is paramount to investing. It's that belief, strategy, and understanding that will give you direction. Otherwise you're just going to follow the herd and as they say, sheep get slaughtered.