Copy Trading Update – eToro – 01/March/2019

Which of these traders is too risky?

Looking at my portfolio, there's a few obviously higher-risk traders in there, and I'm starting to wonder if maybe the risk of them is not worth the reward...

But why would that be? Surely risk goes with reward, so the higher rewards I'm looking for, the higher risk I should be willing to accept. That's also true. A trader like Citadelpoint is only there in my portfolio because he seems well versed in the markets, and educated guy with sound analysis techniques and a history of analysing risk at Cambridge University. He's in the portfolio for good reasons (I think*). But should I keep him there?

The Popular Investor Considerations

This sounds more like a business decision than a trading decision, and really it is... Soon after becomeing a Popular Investor on eToro, I worked out that I could potentially make much more money by being a Popular Investor and having a lot of assets under management than I could from my actual trading. Why is that?

Well, let's say I could make 2% per month (which is a very very high rate of return when compared with industry standards for investment vehicles). How much would I need to have in my trading account so that 2% profit would equal $1000/month?

  • 2% of $10,000 = $200
  • 2% of $20,000 = $400
  • 2% of $40,000 = $800
  • 2% of $50,000 = $1000

So, If I were to make 2% each month, and hope to continually withdraw that 2% to live off it, I'd need to have $50,000 in my trading account. That's a LOT of money...

How else could I make that money with the eToro PI program?

Well, if I can reach the red star 'Champion' level in eToro's Popular Investor Program, I'll get $1000 per month directly from eToro.

What would I need to get there?

A minimum of $5000 in my trading account, and a minimum of 10 copiers who, combined, have invested $150,000 with me.

Which strategy is easier?

Now I'm not saying that it's easy to get those copiers, with that amount of assets under management... But, it's probably more likely than me somehow getting $50,000 to put into my trading account. So instantly, the way I think changes... And suddenly I'm wondering if these risky traders are potentially scaring off the copiers with their drawdowns.

The truth is, I should potentially be more worried about those drawdowns for my own portfolio and copy trading goals. But, I seem to be a bit blinded by greed still, so I expose myself to higher risk in search of higher payouts and it frequently backfires. The hopes for making more cash off being a PI (greed really) are actually outweighing and overriding the greed which leads me to make bad risk decisions in who to copy 🙂 It's a bit of a balancing act, and I'm not sure where it will settle just yet.

Worrying about Trading Stats

I'm suddenly much more worried about my stats as a result of all this. Consistency is now what I'm after. In 2017, I was O.K with a 30% drawdown one month if I believed it would swing up 60% the next month. My stats weren't important in the same way.

Overall I wanted 'big wins' rather than consistent smaller growth. Obviously, I didn't want to see a 30% drawdown ever! BUT, my focus was on the big wins much more back then, so as long as i believed that overall the traders I was copying, or my own trades would come out as winners, I didn't care how my stats looked on the way.

That sort of risky behaviour and thinking, I now see as very unwise. In terms of risk and money management, it's not a viable way of thinking for me any more. But there's potentially a problem from the other side now.

Am I taking too little risk? Or worrying too much with trading Stats?

Can you be too focused on your trading statistics? Some people have been complaining about some of the PIs on eToro recently saying that they're too concerned with their statistics. Is that possible? Can you be too concerned with your stats? After all, that's how we measure who we should copy. We're all here to make money, so why wouldn't we be hugely concerned with how a trader's done so far...

It's true that solid green, consistent stats are our best calling card and advert as PIs. It might also be true, however, that if we're missing out on trades and not taking certain risks, it could be that we're not really trading naturally any more. And that might mean we're disrupting our own trading system which will, in the end, cause us problems.

That's obviously different for me as I'm just copy trading. But even in my case, am I altering my system for choosing traders to the point where it might become a real issue? I'm not sure yet - I'll see. But I'm starting to think more like a 'copy fund manager' than anything else. I'm not sure what to make of that yet. It's interesting for sure. And exciting 🙂 We'll see how it goes.

I know that when it came to investing my Mum and Dad's money on etoro, I instantly chose the low-risk strategy. Conservation of capital was my primary concern instantly. I'd take much less risk with their money than with my own. And actually, their account made much more profit than my own. that also got me thinking... Maybe I should follow my own advice!

So... Should a couple of traders be dropped from the portfolio?

I'm seriously considering dropping a couple of traders from my portfolio - aimstrader and Citadelpoint. Now, Citadelpoint is actually the best performing trader in my portfolio. But he's also by far the riskiest... Do I keep him for the potential profits? Or get rid of him because of the potential losses he could also incur if things go wrong?

What about reducing your exposure to him in the portfolio?

That would be a great solution, but unfortunately I don't have enough additional money to add to my portfolio. I'd need to add a lot more money than I have so that I could make Citadelpoint around 3% of my portfolio. I think at 3% of my portfolio, I'd feel safe copying him with my current risk goals... But I just don't have enough funds to restructure my portfolio in that way. Not for now anyhow.

I'm not sure what I'll do... But I'm leaning towards the idea that dropping him would be the wisest choice.

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