eToro is an online trading platform and social trading network. In Australia, you can trade stocks without any broker commissions, which makes it a cost effective way to start investing. This is my getting started guide for trading on eToro:
What is eToro
eToro is both an online broker and a social trading platform. It's a bit like if you combined Facebook with a broker. You can buy and sell shares through eToro as well as invest in other assets like forex, cryptocurrency and commodities.
Because eToro is a social trading platform, you can also follow other traders and even automatically copy all the trades they make (more on that below).
What can you Trade on eToro
- Real Stocks – you can buy and sell real stocks and not just CFDs. i.e you own the underlying asset.
- Forex – trade currency like the AUDUSD
- Commodities – such as gold and silver
- Cryptos – Like Bitcoin, Ethereum and Ripple.
Why Invest through eToro
- Zero Commissions – If you buy international stocks through Commsec, you'll be charged a whopping $19.95 per trade. On eToro there are zero commissions. eToro is one of a host of new low cost trading apps that are becoming available in Australia.
- Invest in Stocks you Care about – you can invest in products that you use and love like Netflix, Apple, Tesla, Alphabet (Google) and many more.
- Copy Traders – On eToro, traders share the trades they make so you can follow them and learn more about investing. You can even automatically copy these trades in your own account.
How to Start Trading Stocks on eToro
On eToro you trade stocks like Apple, Netflix, Tesla etc without any commissions. This means you don't pay a brokerage fee when you buy and sell the stock. On eToro you are trading a real stock and own the underlying asset.
While it is possible to trade CFDs on eToro, this guide is all about investing in actual stocks through eToro. CFDs are complicated financial instruments that I don't recommend to new investors. I recommend you stick to just trading real stocks on eToro.
What you need to know about trading Stocks on eToro:
- Zero Commissions – There are no commissions when you buy or sell U.S listed stocks on eToro.
- Fractional Shares – You can buy fractional shares on eToro. This means you don't need to buy a whole share.
- No holding Fees – You can buy and hold stocks on eToro for as long as you like. There are no overnight or weekly fees when you buy real stocks (not CFDs).
- $50 Minimum Trade Size – The minimum trade size on eToro is $50 for stocks. So you'll need at least $50 to get started.
- Deposit using Multiple options – you can deposit funds on eToro using PayPal, Bank Transfer or Credit Card.
How to get Started Investing on eToro:
- Create an eToro account. You can create an account for free, even if you're not planning on trading yet. This account can be used to practice trade using virtual money, or just for following other traders.
- Complete the Questionnaire – eToro might limit some trading features in your account if you're a beginner investor (such as CFD trading). This is a good thing and will help protect you from doing anything silly.
- Deposit funds – On eToro you can deposit using a variety of methods. The minimum first time deposit is $50.
- Buy a Stock! – Visit the markets page to see the various stocks available to trade. Hit the “buy” button. A dialog will popup that will show you the various options for buying.
As you can see on the image above, you're able to set the Rate at which you buy the asset or make a market buy (at the current rate). You can also set a stop loss and take profit. A stop loss will close the trade if it loses a certain amount and a take profit will close the trade when it gains a certain amount.
You can choose to set the leverage, however if you do choose to use leverage (anything above X1), then you will be trading a CFD and not the actual stock. Leverage is an advanced trading tool and casual investors shouldn't change this setting. Make sure the dialog shows the message “you are buying the underlying asset”.
How to Copy Trade on eToro
One of the most innovative features on eToro is the ability to automatically copy the trades made by more experienced traders. On eToro, you can choose to share you trades with the community. And other people can follow these trades for inspiration and even copy trades.
Here are some of the traders on eToro:
As you can see above, eToro shows the return each trader has made as well as a risk score. You can click on the name of any trader to see more of their stats:
On a Traders profile page, you get a huge array of stats. eToro shows you what type of assets they trade, their drawdown, risk score, trading frequency and much more. You can also see every trade they have made in the past as well as any posts they have shared with the community. Many traders will make sure update posts explaining why they've made certain trades. It's a great way to learn more about investing and trading.
How to Choose a Good Trader to Copy
I've been Copy Trading for many years now. Here are some of things I look out for when selecting traders to copy.
- History on eToro – I make sure I only copy traders who have at least 12 months of stats on eToro. I believe that anyone can fluke a month or two of good trades. But it takes skill to deliver consistent returns over a long period.
- Low Risk Score – I like to only copy traders who have a risk score of 5 or lower. eToro automatically assigns each trader a score based on how much account capital they use for each trade, what markets they trade in and whether they use leverage.
- Active Profiles – For me, Copy Trading is as much about learning as it is about investing. I like to copy traders who are active on eToro and post regular updates.
- Regular Trades – I don't like to copy traders who only make 1 or 2 trades every few months. I like to see my money being put to work! So I copy traders who make regular trades.
Don't just copy the traders who have the biggest gains. Look for traders who make consistent gains with a clear strategy and focus.
What you need to know about Copy Trading
- You Allocate Funds – When you copy trade, you allocate some of your account capital to be used for Copy Trading. For example, if you have an account with $1000 in it, you might choose to allocate $200 to copy an individual trader. These funds stay in your account and you always have access to them.
- Trades are Copied in Proportion – This is a really great feature on eToro. For example, when a copied trader makes a trade with 1% of their account capital, the same trade will be opened in your account using 1% of the funds you have allocated for copy trading.
- You can set Stop Losses – You can choose to automatically stop copying a trader on eToro if they lose a certain % amount.
- You can stop copying – You can stop copying a trader at anytime. When you do the open positions will close and you can withdraw your funds.
- $200 Minimum Investment – You need a minimum of $200 to copy trade on eToro.
- You can copy trade multiple people – If you want to diversify your portfolio, you can copy multiple people. This means your account could potentially be making dozens of trades each week all on autopilot!
- Traders get Rewarded for Copiers – Traders are rewarded on eToro if they perform well. The more people that copy a trader, the more that trader is rewarded. This is good news if you want to copy traders, because they will want to make sure you keep copying. And the only way to do this is by delivering good returns.
Frequently Asked Questions I get about eToro
What is the minimum deposit on eToro in Australia?
The minimum deposit amount is $50. However, depending on the method you use to deposit, this amount might be higher. The first time deposit amount is also $50. So you won't need a huge amount of money to begin investing.
What fees does eToro charge?
There are no commissions on non leveraged stock trades. If you choose to use leverage or open a short position, you'll see the fees charged before you open that trade. There is a $5 withdrawal fee. There are no fees to deposit, however funds will be converted from AUD to USD (so you can trade U.S stocks). The FX rate is about the same as other brokers (50 pips) such as Stake and much cheaper than the bank FX rate.
What Support does eToro offer?
eToro has live chat support 24 hours a day Monday to Friday. You can also contact support via a ticketing system.
Are my funds safe on eToro?
eToro has been around since 2008 and have an excellent reputation. In Australia, eToro is regulated by ASIC.
Will I need to pay Tax on my eToro Trades?
Like all stock trading, If you buy a stock on eToro and sell it, you will most likely be subject to capital gains. You can access account statements from eToro to make doing your tax easier. It's best to chat with an accountant if you're unsure.
Does eToro pay dividends?
Yes! If you're holding a stock on eToro and it's subject to a dividend distribution, that dividend will be paid into your account.
You can find out more about investing in eToro here