What I am sharing with you are somewhat random observations about a topic that has been very importa...
When Traders Innovate: The Story of eToro CopyFunds
09/14/2017 3:01 am EST
With CopyFunds, investors around the world can have a managed investment portfolio with no additional fees, at a click of a button, writes Shiran Herzberg of eToro.
(Sponsor content) While the online trading revolution was a major step forward for the financial industry, since it enabled almost anyone, anywhere, to become a trader, it was social trading that was the real game-changer.
Once people around the world were able to copy each other’s portfolio, it opened the door to brand new tools and features that could not exist before. One prominent innovation came in the form of CopyFunds.
By creating CopyTrading, eToro enabled its millions of clients to have a people-based portfolio, distributing their resources across a network of various successful traders. This soon created a true meritocracy, in which traders and investors are judged purely based on their success and risk-management skills. It was only natural that traders and investors soon started seeing each other as relevant investment options.
CopyTrading enables clients to choose a trader whose strategy they trust, and whose results are impressive, and replicate every move they make in real-time. Since the copying is done in proportion, traders and investors can invest as much or as little as they like, and still achieve the same results in profit/loss percentages.
A package deal
Since CopyTrading was so popular and successful (more than 77% of copied trades on eToro closed in profit as of August 2017), eToro decided to create a brand new financial instrument, that aims to use the wisdom of the crowd to generate long-term profit.
Grouping several investors and traders together, these products dubbed CopyFunds, were designed to offer more stability and diversification than an investor would achieve when copying a single trader.
Since each CopyFund contains several investors, there’s a double-layer of diversification. The first comes from the fact that each CopyFund contains several traders and investors, meaning the funds are distributed among them. The second layer comes from the traders within the CopyFunds, since each of them has a diversified portfolio of their own. In fact, since some investors within some CopyFunds copy other traders, there’s sometimes a third layer.
Managing your financial future
It is quite obvious that there’s a lot of thought put into the creation of each CopyFund. The eToro Investment Committee uses its professional experience alongside advanced computer algorithms to generate the optimal composition for each fund. The aforementioned people-based investment instruments are called Top Trader CopyFunds. However, eToro offers two more types of CopyFunds.
Market CopyFunds use the same methodology to create thematic investment options for long-term investors. For example, the InTheGame CopyFunds bundles together various leading stocks from the gaming industry, such as Sony, NVIDIA and Activision, into one managed investment solution. There are, of course, many other Market CopyFunds, each focusing on a different market strategy or segment and rebalanced periodically.
Partner CopyFunds are eToro’s way to let other financial institutions harness the power of CopyFunds to create their own investment instruments. eToro is partnered with some of the world’s most innovative financial firms, and using the eToro platform, they created CopyFunds that highlight their unique knowledge. For example, leading stock analysis platform TipRanks created CopyFunds based on the public filings of high-profile investors, such as Warren Buffett.
Conclusion: CopyFunds are a ready-made portfolio
The online revolution made trading available to everyone. The social trading revolution brought forth CopyTrading, which enables traders who lack time or experience to let others trade for them. Combining these two aspects, eToro created CopyFunds - a revolutionary, first-of-its kind investment instrument. With CopyFunds, investors around the world could have a managed investment portfolio with no additional fees, at a click of a button.
All trading involves risk. Only risk capital you are prepared to lose. This is not investment advice. CFD trading.
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