Reasons why people lose money on eToro

CopyTrading and trading on eToro isn’t foolproof, and you can lose money.  I’m going to go through some of the reasons I believe people lose money on eToro and what you can do to make sure you have the best possible chance of success.

No Diversification

Diversification is key to any successful investment strategy.  Sure, some people get lucky by buying into an asset at the right time and riding it to the top.  But these stories are rare, and it’s more like gambling rather than investing.

On eToro you can CopyTrade multiple people to diversify your portfolio.  This will help mitigate the effects of any bad trading.  You can also diversify across different markets and assets.

Panic Selling

The number reasons I believe people lose their money is because they panic sell.  People think that just because a trader has made gains of 20% over the past year, that trader is never going to see any losses.  All traders have losing trades.  And because of the spread on eToro and other brokers, many newbies don’t realise that every trade opens at a loss.  They see this and panic.

The reality is that the best traders to copy generate profits over the long term.  This means copytrading someone for many months.  I copy traders who have stock trades that have been in the red for weeks.  This is nothing to panic about.  If you closed your copytrading position at this stage you would lose $$ without having a chance to regain it.

No Risk Management

Although I advocate sticking with a copytrader, you also need to be smart with risk management.  eToro has CopyTrading stop losses that you should use.  This will close your position if it drops below a certain threshold.  These stop losses are a good feature.  A certain amount of drawdown is healthy and is normal with trading.  But too much means a trader could be on a bad run and you need to take action.  Sometimes it is better to walk away.

Not Copying the right traders

It may be tempting to copy a trader with 100%+ returns.  But the reality is that trader is more than likely using a high amount of leverage and risking a large portion of their trading capital to make each trade.  This is a risky trading strategy and time and time again I’ve seen this guy destroy their accounts within a month or two.

On eToro it’s smart to have realistic expectations.  Remember past performance doesn’t guarantee future results.  Copy traders who have a low risk score and reasonable returns.

Manual Trading

If you’re new to trading, a surefire way to losing your money is to try trading on your own.  The reality is that trading is difficult with a steep learning curve.  Most people who try trading on their own will end up losing money.

Why try trading on your own when you can tap into the knowledge and experience of a better trader?  That’s why I prefer copytrading over manual trading.

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