“Our users are setting micro trends”

Interview with Jonathan Assia, CEO of eToro, one of the world’s biggest investor portals*

Mr. Assia, what is eToro?

Assia: We began in 2007 with the aim of simplifying and democratizing foreign-exchange and commodities trading. I started trading on the stock exchange at 16 already, something too complicated at the time for ordinary people due to incomprehensible systems. The vision of my brother and me was to make global markets accessible to everyone and at the same time increase the fun factor in trading. Our open online trading platform OpenBook allows any novice to enter foreign-exchange, commodities and index trading on a beginner’s account with virtual credit. He can not only see and follow other users’ deals, but also chat with them about their strategies. We believe that dealers should exchange ideas in order to get a really clear picture of the market. In our open-book mode, all transactions can be followed transparently on a live ticker track. In this way, all users get a picture of who acted when and how. The big asset is that experienced traders disclose their knowledge and their individual trading strategies and share them with a large community. As the world’s largest investment network, we make “insider knowledge” transparent.

How many users take advantage of your offer?

Assia: We currently have 1.75 million users. Some 70,000 members are actively trading on eToro. Our 400 or so “gurus”, as we call the experienced traders, act as models for the ordinary users.

How does someone become an eToro guru and why does he expose his trades?

Assia: The guru wants to share his trading experiences with others, discuss them and reap praise and admiration for successful deals. The aim of our traders is not only to make money but also to be more successful than other dealers. Every eToro deal is documented, and a trader’s success, his risk strategy and his trading portfolio can be tracked in our ranking. The more successful a trader, the greater the interest of other users in his strategy. The pivotal point of eToro is that every user can follow successful traders - can “become a follower”.

Can the user copy the strategy?

Assia: With a single click. All deals by the model can be automatically executed by the follower too in real time - at the same prices as the guru. With this lean-back principle, an average user can therefore rely on the expertise of experienced eToro traders and trade successfully without much effort. The asset for experienced traders is that they rise higher in the ranking the more followers they have. We call this the “social indicator”, which is in turn critical to our traders’ ranking in OpenBook. In addition to this social recognition weekly bonuses also attract the gurus.

Among them there are certainly some pros?

Assia: Yes, with our Copy.Me module experienced traders can turn professional and set up their own investment shop. They are certified by us, and must show trading successes, a minimum number of trades and followers or a securities trading certificate. By the end of the year we expect 50 to 100 professional traders on our platform.

Does a follower not make himself dependent on a single opinion with a copy function?

Assia: To diversify investments, a user cannot copy an experienced trader with more than 20 percent of his total investment. A maximum of ten traders can follow a user. Traders can also copy one another. Although no ‘black boxes’ are possible. Here what counts is who followed whom first. In the event that an experienced trader makes a deal the follower does not want to copy, a transaction can be stopped and the copy relationship dissolved at any time. In this respect our system is self-regulatory: if you don’t perform, then no one follows you and you fall out of the top ranking. Technically, our customers can trade either using the WebTrader or on their mobile smartphone.

What is the cost of trading on eToro?

Assia: Our customers do not pay registration fees. We finance ourselves as brokers on the spread of currencies and therefore profit from the deals done. Currently we are seeing around 40,000 trades a day.

Is the eToro community more successful than an individual acting alone?

Assia: Often enough our users set micro trends that can then benefit the entire community. The secret of success here is that every individual has experience or special knowledge which the entire community benefits from. For example, when the great earthquake shook northeastern Japan, even before the first press releases swarm-like movements were observed in our traders in Japan. In sum, we’ve seen here the mass is more intelligent than the individual. Yaniv Altshuler of the Massachusetts Institute of Technology (MIT) is currently investigating how information in social networks influences social processes and economic outcomes. The study examines the extent to which social networks act as a filter and allow the dissemination of valuable information only. We are particularly interested here in the relationship between trading in open networks (Social Trading) and the success of the trading results. We also publish market analyses weekly and follow our users’ trends.

What are your future plans?

Assia: We plan to expand our trading service to selected stocks. Germany belongs here with Italy and Britain to the top five of our largest markets. In Germany we already have some 150,000 users. On the technical side, we are thinking about using our users’ “bad trades” to develop a tool for an anti-strategy. Naturally, increased cooperation with other social networks like Facebook or Twitter is also a big issue for us.

* interview conducted by Insight journalists Christiane Süssel and Michael Garth