Social media and an increasingly speedier internet have made it easier to copy successful traders, with financial news and market analysis that get shared as fast as lightning.
Copy trading — also known as social trading, mirror trading, or auto trading — uses technology to copy the real-time trades of other live investors you want to follow. Every time they trade, you can automatically copy their trades.
Here are three platforms that allow you to automatically copy profitable traders in stocks and crypto.
Jay Smith, CEO of eToro, is not a professional money manager but more than 21,000 people with $40 million in assets copy his trades on his digital platform. The Tel Aviv-based Israeli-British company has more than 15 million users — about the same as online trading firm Robinhood — but copy trading has not arrived yet in U.S. That may be about to change, Bloomberg reported.
EToro offers many of the world’s most popular digital currencies and plans to keep adding new ones, according to its website. It claims to have no hidden fees, no limits on daily withdrawals, and all trades are executed instantly at the price listed.
With copytrading, customers can automatically duplicate the trades of other customers that eToro designates “popular investors.” The company calls itself a social trading network that lets millions of people around the world share their market exploits and opinions, and replicate the bets of the best performers on the system. EToro plans to expand into the U.S. in early 2021 and challenge Robinhood for rookie investors who’ve embraced stock picking.
EToro’s mission is to make trading accessible to anyone, anywhere, and reduce dependency on traditional financial institutions, according to its website.
EToro pays its popular investors up to 2.5 percent of the assets that follow them, Bloomberg reported. Smith is the No. 1 copytrader on the site and his portfolio up 62 percent in 2020.
Critics say eToro and platforms like it are turning the market into something that looks like a game and studies show that beating the market with an actively managed portfolio is almost impossible long term.
EToro uses something called “contract-for-difference” — an advanced trading strategy prohibited in the U.S. — to let retail traders easily apply leverage and execute short positions on securities, commodities, and cryptocurrencies.
One advantage of contracts-for-difference is that they provide traders with all the benefits and risks of owning a security without actually owning it or having to take any physical delivery of the asset, according to Investopedia.
A disadvantage of contracts-for-difference is that investors holding a losing position can get a margin call from their broker requiring the deposit of additional funds.
Yoni Assia, the 39-year-old co-founder of eToro, said the site is not a place for reckless trading behavior — it’s just a new model. “Traditional financial institutions don’t really offer a relevant experience for our generation,” he said. “We expect everything to be in real time, to be mobile, and to be social. That’s what differentiates our platform.”
The company may have a hard time bringing its copy-trading product in its current form into the U.S. if traders on its platform aren’t registered investment advisers. Sharing opinions about stocks and influencing how customers invest could constitute recommendations as defined by the Financial Industry Regulatory Authority, according to Adam Gana, a securities attorney with Gana Weinstein in Chicago.
The eToro site invites users to “see what ‘user-friendly’ should really be.”
Collective 2 bills itself as “like a hedge fund” except it says you never pay a
percentage of assets under management, you never pay a percentage of trading profits and your money is never “locked up.”
A social trading platform, Collective2 matches up traders and followers (investors) with tracking and auto-trading services through a subscription service model, according to Day Trade Review. The platform lets investors monitor and subscribe to independent trading strategies as well as copy trading for a monthly fee. Traders operate their own strategies and collect monthly payouts based on their active subscribers.
Collective2 seeks to discover the best trading talent and give investors and subscribers access to them so they can copy traders. The site urges users to “start a hedge fund without starting a hedge fund.”
“I find that’s a bit of a stretch,” a Day Trade Reviewer wrote. “There is no resemblance to the hedge fund model, as there are no direct (accredited) investors, performance fees, regulatory filings, or compliance. However, traders can arguably develop a verifiable track record through the Collective2 platform.”
A Stanford University dropout, a Yale graduate and a novelist, Collective 2 founder and CEO Matthew Klein says on the website that he is rebelling against — and reforming — the hedge fund industry for personal reasons. “Growing up, he watched his father deal with unscrupulous hedge funds, lack of transparency, illiquidity, and dishonest marked-to-market accounting — all problems Collective2 was designed to solve,” accordnig to the site.
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In a 2018 Medium post, Klein said he is often asked: “If a trading strategy is so great, why sell it on Collective2? Why not just keep it to yourself and earn a zillion dollars?”
Klein answered like this: “Some people share their strategies with the public for reasons other than money: they are building their career, buffing their resume, trying to break into the business … Nothing is guaranteed, of course. You can lose money as well as win. But if you’re looking for an alternative to the same old same old investing opportunities, come on over.”
Zignaly is a trading terminal with cryptocurrency trading bots that lets you trade automatically with help from external crypto signal providers.
It is easy to use and can be used as a passive income machine, according to U.K.-based blockchain news platform Blockonomi. “Since your funds remain on your chosen cryptocurrency exchange, the security concerns associated with using Zignaly are minimal. Even so, the platform has strong security measures in place.”
Trading bots have three benefits over people, according to NewsBTC:
NewsBTC ranked Zignaly among the top five crypto bots of 2020-2021. One of the reasons? Zignaly group is transparent about its trading tool: “users of the robot can quickly call the designers for help or suggestions.” It’s available for Binance and KuCoin crypto exchanges, with plans underway to add more.