Copy Trading Platforms
eToro.com is one of the best known copy trading platforms, but it isn't cheap and is only available in a handful of countries. So we reviewed its platform in detail against two up-and-coming rivals with a strong product offering: FPMarkets.com and LiteFinance.com.
If you live in Canada or Singapore for example, eToro won't be available to you. In which case, we recommend FP Markets hands-down. We've put each of these platforms to the test, and assessed their pros and cons in detail.
But first, before we review their copy trading platforms in detail, lets briefly introduce each broker.
LiteFinance (LiteFinance.com), formerly LiteForex, is an ECN broker headquartered in Russia. Trade CFDs on a wide range of markets on Metatrader 4 or 5, with flexible leverage up to 1:500. LiteFinance accepts all EAs and trading styles, including scalping and news trading.
- Risk warning: 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
- Markets: Forex (CFD), Cryptos (CFD)*, Stocks (CFD), Indices (CFD), Metals (CFD), Energy (CFD)* Availability subject to regulation.
- Platforms: MetaTrader 4, MetaTrader 5, Copy trading, Mirror trading
- Regulators: Cyprus, Saint Vincent and the Grenadines
In this article:
- Copy trading ecosystems
- Copy trading fees and "hidden fees"
- How to evaluate a trader
- How to copy other traders
- How to manage your risk
- How to earn passive income, as a trader
Copy trading ecosystems
eToro was designed from the outset as a social trading network, and its copy trading platform is its most popular service. It was voted "Best Social Trading Network" as early as 2011, and has since attracted over 20 million active users. So it's perhaps no surprise that it also has the broadest selection of traders you can copy, some of which are only available on eToro.com. Its platform is home to 140,000 such traders; however, this number falls to 1,300 when you focus your search on active and verified traders with a 20% return threshold. 4 such traders have over US$ 5 million in assets under management (AuM).
In contrast, FP Markets launched its social trading platform in March 2021 and now hosts over 300 signals providers on MetaTrader 4 and 5. You can search and filter these traders based on their performance over different timeframes, but no information about AuM was available.
LiteForex is home to over 1,600 traders you can copy on MetaTrader 4 or 5. We found 2 traders with over US$ 1 million in assets under management, some of which was their own.
Copy trading fees and "hidden fees"
No broker charges additional copy trading fees. Instead, you'll simply pay trading fees whenever your account copies trades. And in the case of FP Markets (FPMarkets.com) and LiteForex (LiteFinance.com), you'll split any profits with the traders you follow. These profit sharing percentages, set freely by the traders, usually vary between 20% and 30% of the profit they generate for you.
eToro earns money through the spread between the price at which you can buy and sell instruments on its platform, and currency conversion fees. Unfortunately, its spreads and exchange rate fees are on the high end. FP Markets (FPMarkets.com) charges significantly lower fees, which means that you can expect copy trading to be more profitable on its platform, all else equal.
Bid ask spreads vary across instruments, and may also change over time. However, we thought it would be helpful to summarize these below across a handful of instruments, to give you a feel for the differences in pricing between platforms.
|EURUSD||1 pip||1.2 pips||1.1 pips + $10 / lot|
|Nasdaq||2.4 points||1.6 pips||8.1 pips + $0.5 / contract|
|Tesla stock||0.09%||3 cents / share||25 cents / share|
|Oil||5 pips||0.2 pips||1.93 pips + $0.5 / lot|
|Gold||45 pips||0.33 pips||13 pips + $20 / lot|
Notes: spreads were measured in January 2022 using a regular eToro account, an FP Markets Standard Account (MT4/5) and a LiteForex ECN account (MT4/MT5). Trading fees don't include fees on margin trading.
Currency conversion fees
Because the US Dollar is the only account base currency that eToro (eToro.com) supports, you’ll pay a 0.50% currency conversion fees when you pay money in, and take money out of your account (unless you already have dollars). This amounts to a 1% haircut on your investment. This means you'll need to earn just over 1% to breakeven.
In contrast, FP Markets (FPMarkets.com) supports 11 account base currencies, which could save you a significant amount of money. These account currencies are (in alphabetical order): AUD, CAD, CHF, EUR, GBP, HKD, JPY, NZD, PLN, SGD and the USD.
LiteForex (LiteFinance.com) supports 6 account base currencies, namely: CHF, EUR, GBP, PLN, RUB and USD.
How to evaluate a trader
These three brokers provide risk detailed risk and return metrics, as well as insights into a trader's trading history. However, you might be surprised to learn that they sometimes calculate risk and return in very different ways.
We like that both eToro (eToro.com) and FP Markets (FPMarkets.com) adjust a trader's return for deposits and withdrawals. Furthermore, performance is calculated across all trades, including open trades, in line with industry standards. This presents a fairer view of a trader's performance, because it also captures unrealized profits and losses. When performance is only calculated across closed trades, this can incite traders to delay closing loss-making positions in order to artificially inflate their return.
LiteForex doesn't exclude deposits and withdrawals from changes in a trader's equity. This causes returns to spike in the first month (after an initial deposit is made) and distorts measures of performance over time. Furthermore, as a trader's return is only calculated across closed trades, it doesn't capture unrealized gains or losses across open positions. This will prevent you from forming a clear opinion about a trader's true performance.
Both eToro and LiteForex express risk on a scale of 1 to 10, where 1 means very low risk and 10 means extreme risk. eToro's measure of risk reflects leverage, volatility and correlations between the asset classes that a given trader is invested in. LiteForex provides no insights into its calculation. Because these scores are based on proprietary formulas, you'll struggle to translate these into dollar amounts.
We like that FP Markets provides a wealth of risk metrics used by financial professionals. You'll find information about the standard deviation of a trader's returns on a daily, monthly and yearly basis. You'll also be in a position to relate risk and return through each trader's Sharpe ratio and Recovery factor. And finally, you'll find simple statistics around the number of winning and losing trades, the best and worst trades (in dollar amounts).
All three brokers allow you to see the current composition of trader's portfolio by asset class and instrument. This is a picture at a point in time, rather than a view of where they are heading next.
In addition, LiteForex (LiteFinance.com) shows the full history of buy and sell orders since account opening. This could be helpful if you are looking to audit performance or simply learn. If you're keen to find out more about a trader's strategy, you can also send him or her a private message on LiteForex.
eToro (eToro.com) doesn't provide a download of past transactions, but you can get insights into a trader's strategies and current market outlook by scrolling through their news feed. This provides context behind their investments and could spark trade ideas of your own.
How to copy other traders
On eToro (eToro.com), the minimum investment amount is US$ 200, and you can copy up to 100 different traders at any time. Choose whether you want to copy all trades (including open positions), or just new trades going forward. From that moment onwards, your account will mirror the trader's activity, including changes in stop-loss and take-profit orders, and the closure of any trades.
With FP Markets (FPMarkets.com), the minimum investment varies from trader to trader. We've seen amounts between US$ 50 and US$ 1,000. Then, decide how you wish to copy their trades going forward. You could copy their trades in proportion to your funds, open even larger positions or only commit a fixed size to each copy trade.
With LiteForex (LiteFinance.com), there's no minimum investment: chose freely how much you wish to invest in a copy relationship. As is the case with eToro, you can copy all existing trades, or only replicate future trading activity.
How to manage your risk
These three brokers allow you to set risk limits for the entire copy relationship, in dollar amounts.
- On eToro's platform, this is known as a Copy Stop-Loss (CSL). The default Copy Stop-Loss is set at 60%, which means that the copy relationship will end automatically if you lose 40% of your investment. You can easily adjust this percentage if you feel it is excessive. Unfortunately, there is no Copy Take-Profit equivalent.
- FP Markets and LiteForex allow you to set total loss and total profit thresholds, in dollar amounts. For example, you could end the copy relationship altogether once one of these thresholds is met.
If you want to take a break, these three brokers also allow you to temporarily break a copy relationship at any time, without closing your open positions. On eToro and FP Markets, any currently opened trades will continue to copy stop-loss, take-profit or close actions initiated by the copied trader. This is important from a risk management perspective.
Last but not least, both eToro and FP Markets allow you to close a copied trade manually at any time, without ending the copy relationship. This is helpful if you dislike a specific investment decision, but like a trader's overall strategy. This is something you may appreciate even if you prefer a more hands-off approach to investing.
How to earn passive income
If you're a talented trader, you could generate a second income by allowing others to copy your trades. All 3 brokers reward you when you share your trading activity and build a following.
Previously, eToro's Popular Investor Program (eToro.com) paid traders 2% of their followers' Assets Under Management as well as rebates on their trading fees. eToro has now done away with these rewards and introduced a tiered programme in its place. If you're new to eToro, you'll need to spend at least 2 unpaid months as a "Cadet" trader to build a trading history, use moderate leverage and avoid large drawdowns. Once you've graduated from "Cadet" to "Champion", you'll qualify for a monthly payment between US$ 400 and US$ 800 if you manage at least US$ 50,000. You'll need to manage in excess of US$ 500,000 to earn an asset management fee between 1.5% to 2.5%.
In contrast, FP Markets (FPMarkets.com) and LiteForex (LiteFinance.com) allow you to set your commission freely and generate an income from day 1. This commission is a profit-sharing agreement, because it's only paid from positive returns. You may open more than one account to execute different trading strategies and adjust your commission accordingly. We like this model, because it better aligns your interests with that of your followers.
On balance, we feel that eToro offers a more mature copy trading platform, in part because it was designed from the outset as a social trading network. We like the quality of its traders, the quality of their publications and the platform's ease of use. However, it also comes with higher fees that will eat into your return.
Furthermore, eToro isn't available in Canada, India, Russia and many other countries. And in the countries where it operates, eToro may prevent you from accessing its copy trading service based on your answers to its account opening questionnaire.
In contrast, FP Markets provides significantly lower fees that will help you turn a profit faster, all else being equal. We also like its risk management tools, which are more granular than that offered by eToro or LiteForex. This complexity could appeal to more experienced traders, as well as confuse newcomers.
If you'd like to see for yourself, why not open a free trading account today with eToro.com, FPMarkets.com or LiteFinance.com. If you go for FP Markets, make sure you open an account with FP Markets LLC, its entity in St. Vincent and the Grenadines, which is the only one to offer its copy trading service. The name of the entity can be found on the account opening form.
eToro Risk Warnings
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs (product availability is subject to geographical restrictions).
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
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