Important points
- Brokers are introducing copy trading features for users in the U.S.
- Jonathan “Yoni” Asia, the founder of eToro, stated that their copy trading offerings will significantly contribute to growth in the U.S.
“Copy and paste” is becoming a buzzword in investment strategies.
For a while now, people have been trying to emulate successful investors like Warren Buffett and Peter Lynch. They eagerly sift through shareholder letters and keep track of changes in portfolios, hoping to snag some of their financial success. While copy trading, or mirror trading, isn’t a new concept, brokerages are now keen to tap into social networks and automated portfolios to refresh the model for U.S. investors.
Though not everyone is on board with publicizing their trades, a good number of individuals are okay with it. Companies are developing tools that allow traders to share insights and document their trades for others to benefit from. Some investors even look beyond financial portfolios to those of politicians and public figures.
Why this matters to investors
Investing based on the strategies of other investors can be risky. Typically, active managers underperform the market overall. Sure, new digital services make it easier and sometimes cheaper to follow other traders, but this approach isn’t necessarily suitable for everyone.
In 2023, the Dub app emerged as the first regulated copy trading platform in the U.S., even comparing itself to TikTok for investing. It allows users to create portfolios that mimic trades made by politicians and celebrities based on public documents. Robinhood has also announced a “social” product expected to launch next year, while eToro is gradually enhancing its U.S. features.
Approximately one-third of eToro’s nearly 4 million users are utilizing the company’s copy trading features, according to information received from AlphaSense. Asia mentioned in a recent earnings call that this would be a critical factor in U.S. expansion, noting a 15% rise in transaction values attributed to strong interest in copy trading.
In the eToro app, users can engage in copy trading by selecting from a range of traders who are showcased with profile pictures, handles, and 12-month returns that vary from 115% to 33% as of Wednesday afternoon. For instance, the most copied user, @Luistoalana, manages a portfolio comprising 21 assets—95% of which are stocks and the remainder being crypto. This trader frequently deals with stocks like Palantir (PLTR), ChargePoint (CHPT), and Occidental Petroleum (OXY). While stock trading on eToro is free, other asset trades come with fees.
Although some traders can show strong returns at different intervals, it’s noteworthy that active managers historically struggle to consistently outperform the market. The standard disclaimer by most financial professionals rings true here: “Past performance is no guarantee of future results.”
