The Popular Investor Program on eToro allows everyday retain investors to follow and copy the trades of talented and experienced investors. It is a great way to do hands-off investing and delegate the power over your investments to someone who matches up with your investment ethos that has the time and the passion.
But why do some popular investors that you should only copy their trades if you plan on meeting the minimum copy amount?
Each popular investor will have will have a little description on their overview page give you an idea of who they are, what their credentials are and what their investing strategy is.
Normally also included in this section is a piece on what should be your minimum copy amount and the recommended copy amount. I suggest before you copy anyone on eToro, make sure you check this section out first. For an example of what I am talking about here, take a look at the following images.
This popular investor is advising a minimum copy amount of $500 and a recommended copy amount of $2,000 or more. Why exactly is this the case, when the rule across eToro is that you can copy anyone with as little as $200?
What is the rationale for the minimum copy amount
The best way to explain the rationale for some popular investors recommending a minimum copy amount is by going through a few examples.
The popular investors has a portfolio size of $10,000 and you decided to allocate a copy amount of $500 to follow their trades.
Subsequently, a trade has been executed, the popular investor decides to invest 10% of their portfolio cash into Netflix which will mean they will be using $1,000.
The copy trade in this instance would be investing 10% * $500 = $50 in Netflix for the copy trader. Everything in this example works perfectly fine and no issues are caused.
In the second example, the popular investor again has a portfolio of $10,000, but you decided to only copy his with a copy amount of $200.
This popular investor has a slightly different strategy and is more active, they trade daily and can often buy and sell 10 stocks intra day.
After you begin copying the trades of this investors, they decide to allocated 5% of their portfolio to Tesla which equals a $500 investment.
The copy trade in this instance would be investing 5% * $200 = $10 in Tesla for the copy trader. Again everything works out completely fine in this scenario as the $10 trade is above eToro’s minimum threshold for a single trade.
In our final example, the popular investor again has a portfolio of $10,000, but you decided to only copy his with a copy amount of $200.
After you begin copying the trades of this investors, they decide to allocated 1% of their portfolio to Microsoft which equals a $100 investment.
The copy trade in this instance would be investing 1% * $200 = $2 in Microsoft – COPY TRADE NOT EXECUTED as it was well below the minimum trade amount of $10.
Summary of why you should follow the minimum copy guidelines
It is important to pay attention to the eToro popular investor copy guidelines if you want your own portfolio to match that the popular investor.
Setting too low an amount could lead to a situation where the copy trades are not executing and you end up with a different portfolio to that of the popular investor.
Similarly, when you first copy a popular investor, you will need to select the option to copy all open positions. If you fail to select this option you will only copy all future trades the popular investor makes and not what they are currently invested in. Again you would end up with a completely different portfolio.
Do you actually own the underlying shares when you are using the copy trade function on eToro?
There is one situation when using the copy trade function on eToro when you do not actually own the shares.
You are not investing in the underlying Stock/Asset if you are using the copy trade function and the trader you are copying has positions that are CFDs.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.