What is a social trading platform

Risky trend - social trading: trading platforms disguised in the Facebook design

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Trading success in just a few clicks? This is how platforms such as Etoro and Wikifolio advertise. But the risk is enormous.

How do I get more out of my money? This is the question that everything revolves around social trading platforms like Etoro and Wikifolio.

Private investors publish their investment strategies here and some inexperienced investors can then copy them with just a few clicks. It is difficult to see at first glance how speculative the business is.

Inferring the future from the past

The portfolios are presented in an appealing way and the many green numbers are tempting. Inexperienced investors quickly forget the risks involved.

That's behind Etoro

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Etoro is considered the most popular platform for social trading. At its core, the social network is made up of two components. On the one hand, the social component, which enables the exchange with other traders. On the other hand, from a trading platform.

Etoro as a registered broker is based in Israel. However, the company is registered in Cyprus, which is why it is also controlled by Cysec, the Cypriot stock exchange regulator, among others. In addition, Etoro is also monitored by the supervisory authority in Great Britain and soon also by those in Germany.

Because the green numbers stand for past performance. What will happen in the future cannot be said. And that's the problem, says Isabella Kooij, doctoral student at the University of Zurich.

Kooij has been researching social trading for several years and also knows that the returns are sometimes anything but high.

But in addition to the returns, the question arises much more: How many investors actually lose their money on these platforms?

“Around the world, around 70 percent of traders with us have a negative performance. But the number of copiers and long-term investors is much lower, ”says Dennis Austinat, head of“ eToro ”Germany, Austria, Switzerland.

Only 30 percent make a profit. That makes you think. Although Etoro is publicly disclosing all of this, few investors seem to be deterred. 2020 was a very successful year for both Etoro and Wikifolio.

That's behind Wikifolio

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The Viennese startup Wikifolio is eleven percent owned by Postfinance. The platform is particularly popular in German-speaking countries. The way it works is different from Etoro.

Via Wikifolio, traders can publish their trading strategies as a sample portfolio. Wikifolio then provides this portfolio with a corresponding certificate, which can be purchased on the stock exchange.

The difference to Etoro: Wikifolio does not have its own broker affiliated. This means that traders have to trade via a custody account with their house bank or another online broker. So Wikifolio serves more as a substitute for an investment advisor.

Both platforms have seen a strong increase in users. In Switzerland, registrations have almost doubled compared to the previous year. Etoro himself speaks of around 100,000 users across Switzerland. In the whole world there are over 16 million.

But it's not just the visual similarity to Facebook that attracts investors to the platform in droves. Because the low fees seem to be very well received by investors. Compared to conventional financial institutions, both platforms are significantly below the usual price level there.

Lose money, win money

While Wikifolio collects a certificate fee of 0.95 percent, Etoro earns its money a little differently. The registered broker generates its sales through the spread. So the spread between the supply and demand rate.

But where money can be won, money can also be lost. There are also other dangers lurking. Trading is highly addictive. And such platforms, which want to offer the most hurdle-free access possible, can increase this risk, as Renanto Poespodihardjo, chief psychologist at the Center for Dependency Diseases in Basel says: "The more people turn to this, the more people will get sick with the topic."

How do I get more out of my money? Etoro and Wikifolio may offer an easy entry into the financial markets for inexperienced investors - but they shouldn't be blinded by other users' promises of returns.

Because the platforms cannot undermine the mechanics of the financial markets. If you want to achieve a return, you also take a risk. And this risk must be taken into account.

10 before 10 a.m., 12/22/2020, 9:50 p.m.

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  • Commentary by Igor Gorbatschow (Igor Gorbatschow)
    Shares show the (green) process so far and not the future? Really? And I thought, this is where the future is predicted and I have no risks. What's the point of this article? Be a good citizen, don't risk anything, stay in the hamster wheel and get annoyed with the bad guys until your last breath ?! With a little bit of brains, you can get a lot out of good systems. If you don't like too much risk, you get more than just keeping the money in the savings account.
    Agree agree to the comment
  • Comment from Laurenz Notter (ll84)
    So what exactly is the risk compared to normal stocks (aside from being addictive)? I think the article is a bit thin and I am no smarter than before.
    Agree agree to the comment
  • Comment from Timothée Mollet (timoll)
    The day trader, on average, doing significantly worse than the market is not something new. Even professional fund managers are unable to consistently outperform the market. That is why it makes sense to rely on cheap index funds. Thus you are compensated for the risk taken.
    Agree agree to the comment

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