Trading is difficult. Studies have shown that 80% of all day traders quit within the first two years, and only 1% are able to profit. Successful trading requires a good grasp of knowledge about the market. An educated trader needs to understand the importance of developing an efficient trading plan, has to analyze changes in the market, and needs to know how current affairs might affect financial movements.
However, it takes time to build up a pool of expertise and learn how to apply these skills in the real world. This is the concept behind eToro, an online “social trading” platform that acts as a social network for traders to share and learn about trading strategies.
Founded in 2007, the platform today has 11 million users across 140 countries. It has registered offices in Cyprus, London, UK, Australia, China, and the United States. eToro has raised a total of USD 222.7 million in funding over 10 rounds and has hit a USD 800 million valuation in March 2018, according to Reuters.
The Asian market is expected to add up to 30% of the company’s total revenue for 2019, as the online broker firm is expanding its trading services in markets such as Malaysia, Vietnam, Philippines, and Thailand. eToro counts within its investors Chinese investment company China Minsheng Financial and insurance giant Ping An, among others.
KrASIA recently caught up with eToro Asia’s managing director Jasper Lee to learn more about their product and the firm’s long-term plans regarding Southeast Asia. Prior to joining eToro in 2016, Lee spent eight years at FXCM, a retail forex brokerage where he was also general manager.
KrASIA (Kr): What is eToro?
Jasper Lee (JL): eToro is a social trading network. It was founded with the intention to open up the market for everyone to trade freely and openly. We offer multiple asset classes that users can trade in, including stocks, estates, commodities, and cryptocurrencies. Our platform helps a beginner trader to trade, as well as any experienced trader, by relying on the collective wisdom of the trading community. eToro can help traders achieve higher profitability in a short time, reducing the learning curve they would’ve had if they were to pick up trading by themselves.
Kr: Can you share more about eToro’s copy trading function?
JL: eToro’s social and copy trading function is what we call the “social media of trading.” Basically, what we do here is create a platform where traders can share and learn about investing. It works just like any other social media that we use daily, whether it is Facebook or Twitter. For instance, if you think an investor’s portfolio and strategy make sense to you and is profitable, you can “copy” it. You choose the “copy” option, and eToro will invest your money as per the investor’s strategy.
On top of the copying function, users on eToro’s social trading platform can also share their knowledge, like a piece of news they saw, or an analysis they happen to have read. Users can even comment on these posts. It is basically a social media platform by traders for traders.
Kr: Who are the main users of eToro’s social trading platform?
JL: We have two main groups of users—the copier and the one being copied. The “copiers” are usually new traders who have recently picked up trading, but lack the depth of industry knowledge and want to learn from more experienced traders. Whereas those being copied are experienced traders. They aren’t high-end trading gurus or hedge fund managers per se, but these traders have years of experience. These traders use eToro’s platform to gain exposure, as well as to get their name out and be noticed.
Kr: How does eToro generate profit?
JL: Like any other brokerage, what eToro does is essentially providing a platform for trading to happen. As such, we profit by charging a commission, which ranges from product to product and can be either in pips (percentage-in-point) or in percentage.
Kr: How is eToro different from other social trading platforms?
JL: What makes eToro stand out from other competitors in the market is our emphasis on risk control. Trading is, by nature, a risky activity, but at eToro, we strive to help traders reduce the amount of risk, to help protect the user’s money. This is especially important for beginner traders who are trying to learn and copy another investor’s trading strategy.
Kr: Can you explain eToro’s risk control features?
JL: We have a risk score for all investors. The score ranges from one to ten, with ten being the riskiest. If a user has a risk score of over seven, this means his or her portfolio is highly risky. On eToro’s platform, most of our traders have a risk score that is lower than seven. We impose the limitation that people cannot copy from traders with a risk score higher than seven.
At the same time, we also have an option for users to filter out traders with a risk score of more than seven. This does not mean these traders are hidden from other users. People can still search for them and read about their portfolio and trading strategies. They just would not appear on our list of trending traders or noteworthy traders.
Lastly, we have a feature called “copy stop-loss” (CSL). It is an automated risk control system that allows users to set controls for the entire copy relationship at a dollar value. For instance, Trader A copies Trader B with 100 dollars and sets a CSL at 60 dollars. This means Trader A does not want the investment to lose more than 40 dollars. If Trader A does lose 40 dollars, the copy will close automatically, and the trade will be terminated.
Kr: What does Southeast Asia represent to eToro?
JL: We have been doing our marketing and business predominantly in Asia since 2015 and Southeast Asia has become a fast-growing market of emphasis for eToro since two years ago. The user rate here might not be the greatest, but the growth rate certainly is. We have strong financial backing from Asian investors to penetrate the Asian market.
Kr: What is eToro’s strategy for Southeast Asia?
JL: As mentioned, Southeast Asia is definitely a market that we are going to penetrate a lot more, and we want to do it through education, such as online and offline seminars. We also offer virtual accounts for Southeast Asian users, where they try eToro’s platform without using real money.
For me, at least, Southeast Asia is a market of focus, and we’ll spend a lot more resources to establish eToro here.
With that said, we don’t have in mind a particular country of focus, whether is it setting up a physical office or devoting more resources. We see Southeast Asia as a region with a lot of potential, so we want to look at the bigger picture. Of course, a lot of localization work has to be done in the meantime.