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eToro to Launch Copy Recommendations

At the end of last week, eToro – one of the world's largest social trading networks – hosted a conference call with Professor Alex Petland and Dr. Yaniv Altshuler of the Massachusetts Institute of Technology to discuss the researchers' latest idea of “Sustainable Trading”. Thanks to the recorded version of their talk which is available on the broker's YouTube channel, we now have the chance to share their wisdom with you.

Dr. Altshuler describes the development of retail foreign exchange ever since it emerged in the late 1990s as an evolutionary process. Until a few years back, traders worked as solo players, looking for and analyzing information on their own in order to reach an investment decision. Then, with the rise of networks like ZuluTrade and eToro, people began engaging in social trading. The ultimate goal of this second mode of doing forex was and still is to utilize traders' knowledge into what Dr. Altshuler refers to as 'wisdom of the crowd'. An often encountered problem here, though, is that whenever experience and opinion diversity are somewhat lacking, traders are inclined to behave in a herd-like manner and fall victim to groupthink.
To avoid this phenomenon and try to channel the knowledge of more skilled traders towards the ones with less background in retail investing, eToro came up with the concept of guided trading, meaning mimicking the signals of social Gurus. This eliminated arbitrary following and directed the spotlight towards traders with generally successful track records. 
Evidently, guided trading stood the test of time and has proven itself to be a good idea. Dr. Altshuler and Professor Petland's study shows that most of the time Guru trading outperforms social trading although occasionally, results may be in favor of the crowd rather than the experts. This is largely due to the fact that some Gurus on eToro, just like some signal providers on ZuluTrade, are no experienced traders but simply people who risked a lot and got lucky. Consequently, their winning streak reverses in time and they begin losing.
Such flaws in the system and the fact that often traders get caught up into 'eco chambers', a term the two researchers use to describe situations when faulty information gets amplified across the network and leads users into making wrong decisions, have prompted Prof. Petland and Dr. Altshuler to look for the next step in the transformation of retail investing, namely a way to create sustainable trading. Their mechanism for improving the profitability of the network will involve the use of daily tips or otherwise called copy recommendations. These tips will assist traders in making better choices as to whose trades to mimic and based on the data collected over the year and a half that the study took, sustainable trading could potentially raise OpenBook's overall return on investment (ROI) up to as high as 58%. In comparison, social trading's ROI for the same time period stands at a little over 10%. Quite clearly, the difference is enormous.
According to Dr. Altshulers, we can expect eToro to be launching this new service sometime in the next few months.
TAGS: etoro  openbook  guru  copiers  followers  forex  trading  zulutrade  social trading  broker 

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