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This week I have prepared something very special for you – let’s put aside eBay, wholesale and eCommerce for awhile and take a look at one specific way of making money online I have been practising with great success for the last few months. Yes, I’ll share with you exact strategy that generated me £1349 in December 2011 alone, and yes – I worked on this just 4 hours in total (1 hour every week)!
Question: How to get extremely wealthy? As wealthy as Warren Buffett for example?
Answer: by using Money to Make More Money!
In some way it relates to eCommerce World as well – we buy stock for wholesale prices and sell for retail prices to make a profit. But Warren Buffett didn’t open a B&M shop or a fast food restaurant chain, no – he used money to invest in financial instruments, such as stocks and shares. I have always been interested in such financial markers, stock trading and generally, in “using money to make more money” concept. Years ago I was heavily involved in Betfair trading, which is actually quite similar to stock market day trading. But already back then I realized that day trading is not for me:
- It was a very boring way of spending your day, glued to PC;
- It was very stressful;
- Potential earnings were some way limited, at least for my trading techniques.
But still to this day, from time to time, I was looking for opportunities to invest money to make more money. With increased profits from my info products business and eCommerce stuff, I wanted to find a way I could invest my profits into some sort of financial instruments to let my money make more money, hands free way!
Problem is that with most traditional financial investment instruments, such as stocks, mutual funds, savings accounts etc. your potential ROI is very small. Risks vary from one instrument to other but in general, in my opinion, reward for taking those risks is way too small! Invest in dividend paying stocks for 5% yearly ROI? 5% per year? I would better use that money to buy a pallet of un-branded Tablets, made in China and sell off in 3 months time for 20-30% ROI on eBay. Yes, selling physical products involve way more work than financial investments but again, 5%-10% yearly returns doesn’t sound appealing to me either!
And then it happened – six months ago or so, when I was searching for some creative ways to invest money, I found a concept that totally blew my mind away! Same concept that few months later made me £1349 net profit in December 2011 alone!!! And today, I’ll share with you exactly how I did it…
Welcome to the World’s Largest Financial Marketplace – Currency Trading!
What is Currency Trading in first place? To put it simply, it’s the World’s largest financial Marketplace with estimated turnover of more than $4 trillion each day. Currency Trading (further in text simply “Online Trading”) is a market where anyone (individuals, banks, investment firms etc.), anywhere in the World can conduct foreign exchange transactions (hence sometimes it’s called “currency exchange”). Basically, it’s all about the PRICE for currencies being traded – will it go up or down (based on all kinds of political, economical, market etc. factors), much like with STOCK MARKETS. So you try to buy “low” and sell “high” to make profit.
What makes Online Trading so unique?
- Huge trading volume representing the largest asset class in the world leading to high liquidity;
- Geographical dispersion;
- Continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday.
If you’re looking for more detailed explanation on what Online Trading is all about, please take a look at Wikipedia page here. It may take some time for you to fully grasp how it works, especially if you know nothing about stock markets etc. but essentially, it’s not that difficult concept to understand. When I try to explain to other people what Online Trading is all about, I just say that it’s very similar to buying and selling STOCKS, with the difference that with Online Trading you buy currencies and not stocks, bonds or other financial instruments.(which are also available as we’ll discover later on)
Another interesting nuance with Online Trading is that you’re actually buying/selling currency pairs and not individual currencies. Why’s that? Because it’s is a currency exchange marketplace and to buy one currency, actually means EXCHANGING it with another one. It looks something like this:
EUR/USD is the MOST popular currency exchange pair. But you can trade on more currency pairs plus most Online Trading platforms offer trading Gold, Silver & Oil as well as World’s leading stock exchange indexes, like SPX500, NSDQ100, DJ30, FTSE UK 100 and others.
For now, you just have to understand what Online Trading is and how you can make money from it. It’s simple, right? Buy “low” and sell “high” to make a guaranteed profit! Much like with stock markets, right? Then why 99% people lose money with this in long term? Why so many people are losing their life savings when stock markets collapse? Because the tricky part with Online Trading and stock markets is to know WHEN to get it and WHEN to get out. That’s the simplified key to success with financial trading – to know exactly WHEN to buy and to know exactly WHEN to sell!
And this is where SKILLS & EXPERIENCE plays the biggest role. Currency prices, stock prices, oil/gold prices changes based on all kinds of factors, like political/economical situation, decisions, credit ratings, storms around the World, terror acts, inflation etc. etc. A Trader (person who trades) have to learn how all these factors affect currency exchange rates to predict when prices will go up or down, to make profitable trades. Now, these skills can’t be learned by reading few books or by watching some YouTube videos. You would have to spend years upon years on practising these skills and even then, there are no guarantees that you’ll succeed. Plus it’s a well known fact that it takes a lot of nerves and gray hair to become a TOP Trader – be it Currencies, Stock markets or Betfair – principles stay the same for all Marketplaces.
At this point you should say – so, what’s the point in doing all this? EXACTLY! Chances are very slim that you could become a professional Online Trader BUT here’s the good news – you DON’T HAVE TO!
The day when I found eToro really changed the way I look at Online Trading!
What’s eToro and what’s so special about it?
eToro is a social investment network. It acts as a middleman between traders by creating special online platform and software so that whole trading process is straightforward. These days, anyone, with as little as £100 can open an account and start trading on eToro. The currency buying/selling process is so simple and visually appealing that a child could perform a trade! Just take a look at eToro’s screen shot below:
As you can see, it takes just one click to buy or sell EUR/USD currency pair. The simplicity of these Trading platforms is the number one reason why online trading is so popular these days. Tens of millions of “normal” people are trading online nowadays, from the comfort of their homes. There are dozens upon dozens of different websites and eToro alone attracts more than 3 million users. But that’s not all, eToro is the World’s first social investment network offering a brand new, UNBELIEVABLE feature called “eToro Open Book” with the “eToro Copy Trader” options!
And this is the reason why I actually started looking into online trading! I knew about opportunities to buy and sell currencies online years ago but always stayed away as essentially, it was the same day trading concept I went through with Betfair trading. eToro has changed this and basically merged Facebook concept with online trading concept to create ultimate, social trading platform called “eToro Open Book”. Click on the video below to see how exactly it works:
When I saw this first time, I thought – WOW (!!!), this is such a good idea! I knew that chances of becoming a profitable trader for me are very slim and it would take long years, wasted down the drain if it didn’t work out at the end of the day!
Why spend years on learning this stuff when you can simply copy what BEST OF THE BEST are doing?
Would you spend years trying to learn how programming works to create a shopping cart? Or simply buy Open Cart, 3D Cart or any other pre-made shopping cart systems? And eToro offers just that – opportunity to copy exact trades best traders are carrying out. And this is the core concept for my system: Copy Best Traders on eToro to Make Profit WITHOUT actually doing any trading on my part!
The idea has a very simple and straightforward reasoning – to follow absolutely BEST traders and earn money from their experience and trading skills. If these top traders couldn’t make me profit in long term, there’s no chance I could do it on my own, right? Exactly! So with this strategy, absolutely anyone, anywhere in the World, even without any experience with Currency Trading should be able to show a long term profit. Of course, there are some important questions that need to be addressed, like: which traders should I follow? How to minimize risks? How to manage investment portfolio? I’ll try to cover most important elements in this blog post to help you get up and running ASAP without wasting months learning how to best utilize eToro’s trading platform.
My System Explained
Currently, eToro allows us to copy up to five traders and I believe the best way is to maximize it to full potential and divide your money equally to 10 traders you’re following (10% goes to each bank). Obviously, the more diversified your portfolio is, the less chance of big loses when trader’s performance goes down. My general rule of thumb is to absolutely minimize potential loses, even if that means lower profit in long term. By this I mean – I only follow/copy traders with low to medium risk portfolios, with proven and positive record of at least 6 months. eToro makes this process extremely easy as you can analyse each trader’s trading style, past performance etc.
I have created a 5 filter system I use each time when looking for new traders to copy:
* Filter #1 – Trading History
This is the most important one as shows how well any particular trader performed over the last 6 months. You can also change data range to last week, last month, last year but I have found that it’s best to stick with last 6 months as this gives the most objective information. What you’re looking for are traders with steady, increasing graphs without big jumps or long losing periods. Why? because we’re looking for professional traders who know what they’re doing, not gamblers or lucky newbies making few good trades and then losing it altogether! A perfect example of what kind of trader you want to follow:
As you can clearly see, pawelskrzypek (trader’s nick name) has a proven track record of profitable trades making more than 100% yield over last 6 months.
* Filter #2 – Risk Breakdown
I’m all for high returns on my investment BUT usually they come at a price. Yes, there are traders who make 10% a day by Trading on eToro BUT they’re usually involved in high risk, high leverage trades. This is something I always try to avoid as I’m not looking for a quick million here – it’s all about steady, positive ROI in long term. That’s why you want to check out trader’s portfolio allocation graphic:
As you can see, pawelskrzypek’s portfolio is made up of 100% currency trades with 99.3% of trades being low risk. This is exactly what you’re looking for!
* Filter #3 – Copiers
You want to copy ONLY real traders, not people who follow & copy other traders! That’s why you want to check if trader copies anyone or all trades are made by himself. You can easily do this in same Portfolio tab, by clicking on “Copied Traders” button:
Pawelskrzypek isn’t copying anyone, which is a perfect fit for my trading strategy!
* Filter #4 – Open Trades
Next thing you can check on trader is Open Trades. Open Trades show all trades that are currently opened by trader. What we’re looking for? Avoid traders with negative Open Trades that are opened weeks or months ago. For example, a trader opened a trade 3 months ago, price went to the wrong direction but instead of taking loses, trader left that trade opened in hope that in future price will go back. This is what I call GAMBLING and you definitely don’t want to copy gamblers!
Pawelskrzypek has many open trades BUT they all are opened few hours ago – this is totally ok and that’s how trading works. Again, avoid traders with negative, Open Trades opened weeks or even months ago.
* Filter #5 – Trading History
Lastly, check trader’s history to see results for most recent trades. Pay close attention to number of trades executed per month – I wouldn’t choose a trader with less than 30 trades as I’m always looking for active traders that are trading each and every day. Don’t be afraid of sellers with lots of negative trades! Even more – I would rather see some negative trades in trader’s Trading History as that would show that trader sets proper stop loss points and takes adequate loses when market goes the wrong way. You’ll see many traders on eToro with 100% positive trading history but when you check their Open Trades you’ll see why – they’ll have large, negative Open Trades left for months, so that they don’t have to close them and face loses.
Ok, so these are my TOP 5 filters to find good traders to copy on eToro! With experience, comes ability to spot good traders almost instantly so don’t be afraid if this all looks too complicated in the beginning. Once you find your first few traders to copy, next time you’ll look at all this data with more knowledge and power to separate good traders from bad ones. There are some other things you can check like Trader’s comments, 12 month trading history and others but for beginning, these 5 filters should be enough to find good, profitable traders to follow.
How to Get Started
1) Open eToro account
There’s no cost involved to use Open Book or eToro – you only pay small commissions per executed trades. There are no sign up or monthly subscription fees involved. You could ask – what’s the point for traders to share their strategies with other people by allowing them to copy trades? That’s the best part of this – they also get commissions from trades carried out by their followers/copiers! This means that those traders get paid based on their performance – the better they perform, the more money they earn! It’s an absolute win-win business model and I really think it’s groundbreaking feature in whole Online Trading industry.
2) Deposit money
eToro accepts credit/debit cards, PayPal, wire transfer and some other payment methods. You can start with as little as $50 but I recommend depositing at least £200. Why? There are two reasons:
1. With smaller amount you won’t be able to copy 10 traders as then you would have only £5 for each. Most trades are being made with very small % of the bank and with £5 you may actually not get all trades as some will be below 1p. If you absolutely must go with minimum $50 deposit, copy just one trader in the beginning (not best from risk management point of view).
2. eToro offers credits on first time deposits! The more you deposit, the more credit money you receive. And this credit applies only to first time deposits, make sure you use this promotion and get most out of your initial deposit.
3) Find 3-5 traders to follow
Once you have opened account and deposited some money, it’s time to find traders you want to copy! Stick with my 5 filter system explained in this article and find 5-10 traders. I always stick with 10 traders as that gives me managed risk when one trader starts to perform badly. When you have 10 different portfolios, risk of losing large amounts of money is minimized.
4) Evaluate traders each week (1 hour)
This is your actual, on-going work! Spend at least 30 minutes to one hour each week to analyse how your traders are performing. If you see that trader’s performance goes down, un-copy it and look for a new trader to copy. I do this by re-evaluating last month trading history graph for each trader, each month. What you’re looking for is downward trading activity, like in this example:
5) Know when to quit
Don’t be a gambler and know when to quit, even if it means taking small loses in short term! It’s crucial to monitor how your traders are performing and if you spot a negative trend (like shown above), un-copy that trader, even if it means closing down some un-profitable/negative trades. It’s all about long term profits – you have to be prepared to take some loses when trader goes down, that’s part of the plan.
The Effect of Compounding
So here it is, my exact strategy that made me £1349 in December 2011 alone! Surely, you won’t make that much from a bank of £200 BUT it’s essential to understand how compounding effect works with financial investments like these. Do you know how much could you have in one year by starting with £200 and making steady 10% ROI each month? £627.69 What about 2 years? £1,969.95 And 3 Years? £6,182.54
The problem is that most people are impatient and simply switch from one idea to another every month! That’s not how you’ll achieve long term profits with Online Trading. This game is for people who are ready to wait and be patient. Good thing is that with eToro and this simple system, it’s not like you have to work very hard on this. Anyone, with a full time job can invest few hundred pounds and try this out for at least few months. Maximum you’ll spend 30-60 minutes each week mostly to check profitable trades, lol
Another great strategy to boost the effect of compounding with Online Trading is by keeping investing small amount of money each month. For example, you have £200 spare income each month – you start trading on eToro with £200 and seeing that your strategy works and you’re making a steady profit, keep adding £200 to your bank each month. At least for first three years. What effect this causes? MASSIVE increase in overall bank value!
For example, if you start trading with £200 and get steady 10% each month BUT do not add any more money to your bank, at the end of five year term your bank will be £60,896.33. On the other hand, if you keep investing additional £200 for next five years and still make 10% monthly gain, your bank after five years will be £728,555.93. That’s a massive difference and reason why I recommend you to keep investing, even small amounts of money, each month to help compounding effect do it’s work at maximum rate!
To sum it up – the longer you leave money “in system” and let compounding do the work, the greater profits you’ll face. Think about all the large investment companies, same Warren Buffett – they also invest money in long term and they perfectly know that it’s all about constant strategy and patience – be it a economic boom or recession.
My personal goal is to achieve 10% monthly yield with as minimum risk as possible. Because I know how those 10% each month accumulate over longer period of time! And this is all passive income, don’t forget about that.
Yes, eToro also offers trading with Gold, Silver, Oil and this is actually something I’m looking into on my own, apart from copying currency traders on eToro. I really believe that there’s a huge potential in Oil and Silver (gold is over-priced in my opinion, this is not the best time to purchase it). Particularly OIL is what interests me most as I’m confident that oil price will increase significantly over next 5-10 years. What I’m looking forward is buying oil using eToro’s platform as a long term investment and make huge ROI when price rises in few years time.
Here’s another interesting feature for eToro – LEVERAGE! Leverage means that you can trade with more money than you actually have in your account. It’s hard to explain in one paragraph but for example, with a bank of £200 you can purchase OIL worth £1000. This means 5 x more profit when price goes up and you decide to sell. If you’re interested more about how Leverage function works, check it out in your eToro account.
*** UPDATE ***
Just wanted to give a quick update on how you can use Leverage in your advantage when doing your own trades. Let’s take OIL as an example as it perfectly fits my long term trading strategy. Leverage feature effectively allows you to use more money to buy or sell currencies, commodities or indexes:
In screen shot above I’m placing an order to buy OIL and Risk Level (x5) is my actual leverage for this trade. Amount (10 units) – for $220 is my personal money I’m risking with. But because I have enabled x5 leverage, effectively I’m buying $1100 ($220 x 5) worth of OIL. Why’s that cool? Because I’ll make 50% ROI when price moves just by 10% roughly (Take Profit price: $109.71). If I wouldn’t use leverage, I would just make $20 or so instead of $110.
Can you see potential of this? Oil, Gold or Silver price have to increase by 10% and you can make 50% ROI on your trade! You can increase your ROI even more by using higher leverage but that creates risks if price goes down. I would recommend sticking with x2 or x5 leverage and maybe x10 if you really know what you’re doing.
Also note that I have set Stop Loss at -$220 (when price goes down from current$98.68 to $76.85). That is very un-likely of course as oil price doesn’t fluctuate like that. Even if that happens, I can lower my stop loss point to say $30 (lowest historical price in last 10 years) and still keep trade opened.
Lastly, for long term trades, don’t forget to click the “Carry Trade Over Weekend” so that it’s not automatically closed on Friday, when markets close. There’s a small fee involved for carrying trades over the weekend, in my given example it’s $0.05 (five cents) for the weekend. It eats a little bit in potential profits but still, it would be just $5 for 100 weekends or roughly 2 years of holding that trade.
I wanted to share this with you just to show what’s out there apart from eBay, online shops and Amazon Marketplace. I do not plan on investing all my money in this and quit doing everything else, at least not for now. Obviously, risks are still involved with this kind of investment but potential profits are huge! If you copy good, long term traders and do not make any stupid mistakes, it would be really difficult to lose your initial investment. Besides, you get that initial extra credit on your first deposit so you’re literary trading/risking with eToro’s money, not yours.
Yes, risks are involved so DO NOT invest all the money you have or do similar stupid stuff! You should only invest money you can afford to loose, no matter what happens. You can start with few hundred pounds and trade for 3-4 months. If you’re getting steady profit, then you can invest more. But in no way I can guarantee you that you’ll make money (that would be too much asked from me as I myself trade on eToro only for last few months, will be happy to give a more detailed update in one years time).
Lastly, this is all tax free income in UK so what you actually earn on eToro is 100% yours to keep, no taxes to pay!
I really hope this rather lengthy article is somehow valuable to you! I know that it’s a not a Bible on how to make money on eToro but I have tried covering at least all the basic stuff and shared you my detailed experience. Any questions, feel free to leave a comment below this post and I’ll try to give you more detailed advice.