Key Takeaways
- Brokerages are starting to roll out copy trading on their platforms for U.S. users.
- eToro founder Johnathan “Yoni” Assia said its copy-trading product would be “an important driver of growth in the U.S.”
“Copy + paste” is becoming a trending investment strategy.
The masses have long tried to emulate legendary investors like Warren Buffett and Peter Lynch, religiously reading their shareholder letters and tracking their portfolio changes in the hopes of capturing some of their returns. Copy trading, also known as mirror trading, isn’t new, but brokerages see opportunity in rebooting the idea—powered by a social networks and automated portfolios—and rolling it out to American investors.
Not everyone wants their trades to be public, but many don’t seem to mind. Brokerages and other firms have rolled out tools that let traders share thoughts, ideas and even log their trades for others’ consumption. Some investors have chosen to eye not just the portfolios of investors, but those of politicians and other officials.
Why This Matters to Investors
It can be costly to put your money behind another investor’s picks—at least in the sense that, broadly speaking, active managers tend to underperform the market. New digital services make it easier to track other traders and, in some cases, less expensive—but it may not be the right move for everyone.
The 2023-launched Dub app, which is likened to TikTok for investing and claims it is the first U.S. regulated copy-trading platform in the U.S., lets users build portfolios that mirror trades of politicians and celebrities pulled from public filings. Robinhood (HOOD) recently announced a “Social” product, expected to arrive next year, and crypto-first investment platform eToro (ETOR) said it is gradually rolling out that feature in the U.S.
Roughly a third of eToro’s almost 4 million user accounts use its copy-trading product, according to CEO Johnathan “Yoni” Assia, who said its it would be “an important driver of growth in the U.S.,” during its earnings call last week, per transcripts provided by AlphaSense. The company’s 15% rise in trades in the past quarter was driven by “strong momentum” behind copy trading, he said.
On the eToro app, copy-trading means picking from a carousel of traders listed with profile pics, handles and their 12-month returns, which as of Wednesday afternoon ranged from 115% to 33%. A Top 10 “most copied user” @Luistoalana, to name one example, has a portfolio of 21 assets, 95% in stocks and the rest in crypto; he often trades Palantir (PLTR), Chargepoint (CHPT), and Occidental Petroleum (OXY). EToro’s stock trades are free, though it charges to trade some other assets.
While traders can log big returns over various timespans, active managers have historically been unable to consistently beat the market. The mandatory disclaimer most financial professionals use “past performance does not guarantee future results” would apply here.