eToro Social Trading

E-Toro was founded in 2007 iN Cyprus and is a global trading platform focused primarily on currency trading. They have to date received nearly US$20 million in investment financing and claim 1.5 million registered users with membership increasing at a rate of 2,000 per day. While they are functioning as a traditional currency broker with attractive spreads and a very low minimum for new accounts, they are unique in their combination of standard foreign exchange trading technology with social media. They also broker trades in commodities, including precious metals, and equity indices.

Here’s how it works. At the center of their model is a ranking of all their traders, both worldwide and for each currency pair. Successful traders can be “copied” by other traders. What this means is that you can set up your account to reproduce the trades of one or more of the highly ranked traders in real time. You can assign a different percentage of your account to each trader you’re copying and do trades on your own at the same time.

The other unusual part of the way eToro does business is its focus on inexperienced traders. They market themselves as a good broker for experienced traders but focus their marketing and business model toward recruiting people new to trading. They provide educational resources and let you set up a practice account with $10,000 (infinitely replenished if you lose it all) worth of pretend money, and let you trade, including the use of the mirroring feature, for as long as you like until you’re ready to risk actual money.

Though it’s probably not true that all traders are motivated by the same motivations that propel rock stars to do what they do, for those that are, eToro is a gift from the gods. Top of the global heap, my name in lights, and thousands of people copying all my moves like members of an enormous chorus of air guitarists. The only thing that’s better than making money is making fans by making money. It’s brilliant, and once you see it in action, it also seems inevitable. You can make money from your own trading activity and, if you’re a “guru” trader you can earn a substantial monthly bonus based on your number of followers. Your bonus can be as high as US$10,000 if you have 1,000 or more followers (there are traders with more than 2,000). The eToro on the spread, just like any other broker (as low as a modest 2 pips on EUR/USD), and they’re willing to share some of that revenue with you if you recruit new traders for them. You can take US$100 for each one, or 25% of the money made on each one for life.

The eToro model is an unprecedented stop toward the democratization of global market trading. In the last 30 years computer and communication technologies have opened up the exclusive club of expert investors to just about anyone anywhere with a dollar and a dream. The eToro approach takes this trend to a whole new level. Co-founder Yoni Assia puts it this way, “Unfortunately, financial trading is usually not accessible to the masses, which seem to be confused and intimidated by the complicated charts and financial jargon common in the industry. The introduction of the Internet into the equation provides the solution: simplified online trading that provides easy access to the global markets.”