Here’s how you use crowd wisdom to make benchmark-busting investments

Here’s how you use crowd wisdom to make benchmark-busting investments

eToro’s CopyFunds combine traditional investment management with cutting-edge financial technology to create a unique investment product.

The “Fintech Revolution” triggered numerous innovations and investment methods that have changed traditional trading and investment industries. While initially, the internet gave almost anyone access to day-trading and other investment practices, it was only when features unique to online trading emerged that fintech became an industry of its own.

A prominent aspect in fintech, which was prompted by the Web 2.0 revolution of the early 2000s, is social trading. This practice adds a community aspect to trading and investing, encouraging dialogue and a mutual exchange of knowledge. Pioneering social trading, eToro has created a community that numbers millions around the world and has leveraged its massive user base to create a brand new financial instrument: CopyFunds.

Strength in number crunching

Comprising a group of top traders, or several financial instruments following a predetermined market strategy, CopyFunds offer a new way to invest in the long-term by accessing a ready-made portfolio. Each CopyFund is managed by eToro’s Investment Committee, a team of financial experts, including licensed brokers, and some are even powered by artificial intelligence and machine learning algorithms. CopyFunds are roughly divided into two types: Market CopyFunds and Top Trader CopyFunds.

Thematic investment made simple

Market CopyFunds are a thematic investment tool, meaning they focus on a specific market segment, such as banking, gaming, tech, etc. Each CopyFund aggregates various stocks from a certain segment and gives people the option to invest in a portfolio that’s designed to track that market. This way, if an investor believes that a certain market would show gains as a whole, they could invest in it with just a few clicks.

One example of a Market CopyFund is InTheGame, which comprises top companies who produce video games or gaming hardware. The gaming industry ballooned from $400 million to $100 billion over the past four decades and has become an alluring option for many investors. The Crypto CopyFund does the same with cryptocurrencies. Bitcoin, Ethereum, Litecoin and other digital coins have garnered a lot of attention in 2017, some showing price increases more than 1,000%. The Crypto CopyFund is an easier way to invest in six of these innovative assets, without needing technical knowledge.

Investing in people

However, the biggest innovation lies in Top Traders CopyFunds. These CopyFunds are a portfolio of people, not stocks. Since all of the traders’ data is transparent on eToro, it is quite easy to locate traders that have done well. However, eToro goes to extra lengths to create these CopyFunds; using professional analysis and computer algorithms to locate the traders and investors which are most likely to create a profit in the future and bundle them together in one, fully-managed portfolio.

The MomentumDD CopyFund, for example, is managed by eToro’s Investment Committee, and uses an artificial intelligence algorithm developed using Microsoft’s machine learning engine, to locate the traders who are most likely to gain momentum and generate a double-digit return.

One of the key ways of reducing risks when trading is diversification: Investing in several assets across various categories, to spread out the risk. Therefore, Top Trader CopyFunds offer a double layer of protection, since they contain a diversified portfolio of investors, each with their own diversified portfolio of financial instruments.

Plenty more to come

It has only been a year since CopyFunds were introduced, and they have already proven to be one of the most innovative and profitable financial instruments available today, with quite a few of them beating market benchmarks such as the S&P 500. Moreover, over the first year, eToro launched Partner CopyFunds, which enable its partners, some of the world’s leading financial analysis companies, to create their own Market CopyFunds. Looking to the future, eToro will continue to utilize cutting edge technology and the most recent innovations to improve and expand its CopyFund offering.

Cryptocurrencies can fluctuate widely in prices and are therefore not appropriate for all investors. Cryptocurrency trading is not supervised by any EU regulatory framework. Past performance does not guarantee future results. The trading history presented is less than 5 years old and may not suffice as basis for investment decisions. This content is intended for educational purposes only, and shouldn’t be considered investment advice. 

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