Risk Management is something which actually narrates the difference between success and failure especially when trading online. It should be seen as a constructive part of your eToro trading armor. If you use it in a well thought-out tactful manner, solid risk management can be used in an offensive and gainful way.Risk Management is a key factor of any unfailing trading technique and also when you copy other traders with eToro it is very important you have proper understanding of your account risks and their foolproof management. Following are the top 5 most effective risk management techniques at eToro.
- Within the share you make to each Guru, the concrete risk the Guru applies to his own account is multiplied proportionally to your allocated fund. Hence it’s very essential you get aware of the risk level of any Guru you copy (or decide to copy) on eToro. For some Gurus, eToro shows a fundamental “Risk Breakdown” on their portfolio screen. It gives a brief account of how many of their past trades involved low, medium or high risks. This Risk Breakdown is not revealed for all gurus and from the past information currently given for each Guru, there is tool to compute a risk level at your own. Hence, the finest (and at times the only) way to get a clue of how much a guru puts at stake per trade is to copy them by means of virtual money in a demo account.
- Take a start from an investment of at least $1000. This will facilitate you to carry out X25 leverage trades of $40, which is a 4% share of your whole financial credit per trade, which will also let you open several trades at various technically-calculated entries. This would offer you a good edge of error to securely absorb any set back in your trade. With this technique you may do get draw-downs on trades likely to occur, but to what extent none of us can precisely predict – for this reason we need the fortification offered by a good risk management tactic.
- When calculating risk, don’t enter a high value on the Advanced Filters default Risk settings. Selecting “Low Risk” even returns Gurus with > 50% weekly drawdown (extremely high risk in our opinion). Hence always look at the values in the column, so for lower risk you can look for eToro Gurus with <10% or 15% weekly draw down.
- Open trades up to 70% of your equity but never invest more than 20% of your equity on a single eToro trade. This seems like a lot when compared to other traders and the common 2-5% but that is valid for technical day traders. Choose your position sizes sensibly because such trades always succeed. Go for a high leverage and set an SL that is very improbable to be attained ever. If you trade commodities, the price will never drop below certain levels (for example, you will never get a container of crude oil for $10). So, always adjust your positions to use the entire potential of your equity. If a trade turns green set the stop loss closer so that your trades will need as minimal equity as possible. Then you can open more eToro trades or regulate stop losses.