Holy Shiiii

PIs are paid according to a formula based on the aggregate level of funds placed with the platform by their copiers. The stars are paid up to 2.5 per cent of those assets — payments that can amount to hundreds of thousands of dollars per year.

This is on one of the “investment platforms”. Trade your own portfolio. Then, as people copy you – making you a PI – you get a slice of their money.

There’s no way at all the platform is making 2.5% of those funds invested. So where’s the money coming from?

Plus, obviously, how does one attract $100 million to copy ones’ trades?

11 thoughts on “Holy Shiiii”

  1. Why not just buy one of those pooled investments? What would make you you want to track the trades of some random person?

  2. “Plus, obviously, how does one attract $100 million to copy ones’ trades?”

    Doesn’t have to be $100 million following you, if you’re getting regular trades followed. With a 2.5% kickback, just $100,000 following you in 1 trade a week would get you $130,000 a year.

    As you say, it’s the 2.5% kickback that seems unlikely these days.

  3. Seen something like this before, a few years back, but can’t really remember the name. Fairly sure that you could sign up and just play it as a game, see how many people copied you.

    Anyway: Fees, being the obvious answer.

    I think what’s going on is this;

    There are two portfolios. The first is seeded with capital from investors, and it simply buys assets, selected by most liquid, or surveying the message boards and tip-sheets for mentions or textual sentiment analysis, or however you want to do it. Cash is paid away to external marketparticipants, brokers, whoever, in the normal way in doing so.

    This portfolio now forms a dark pool. You get subscribers to the platform, who pay you fees, and begin to add to AUM in the pool. Inside, you mirror market prices, and you can be as competitive with transaction fees or spreads as much as you like. You’ve probably got a very good chance indeed of only having to rebalance the pool (portfolio) by trading with normal, external market participants rarely anyway, but this is further improved by the “social” copying mechanism. So cash paid away to the market is minimal or negligible, and with any luck, additional assets flowing in from new subscribers is easily predictable, so something that looks a bit like front running could happen there.

    The “PIs” are notionally being paid as traditional asset managers, a percentage of AUM, but it’s actually being paid straight out of the fees charged to their followers.

    The interesting bit is what happens with the second portfolio, which is where you and your investors actually make money. I think that boils down to a fairly straight-forward long/short equity fund, where your decisions are informed by what your captive subscribers are doing within the pool. With enough of them, you’ve probably got a pretty good proxy for what all the other retail investors are doing, or likely to do next. Assuming it’s going OK, may be seed a third portfolio and open that up to investors, and collect management and performance fees in the usual way. You could segment and target a fourth, fifth, etc, etc any way you fancy.

  4. Is it something simple like it was reported wrong, and should be 2.5% of profits?

    Wonder if it’s worth setting up a few accounts, making some cheap but risky trades on each, and if one looks to be doing well might attract followers?

  5. Doesn’t look to be worthwhile for me – you need to have 25k invested before you get any significant money back. With 5k invested yourself you can get $400 or $800 per month (higher amount if you grew AUM by 1% in the last month). 25k gets you 1.5% or 2% of average AUM / 12. Which seems excessive. With 50k of your own money, that goes up to 2% or 2.5%. I don’t see how that’s affordable.

    Details at https://www.etoro.com/copytrader/popular-investor/

  6. Ouch. Just had a look through some of their listed popular investors. The risk they are taking is not insignificant. One guy is short the NASDAQ with 20% of his portfolio, as well as being short oil but long Shell, so some attempt arbitrage going on.

    Lots of money gets lost this way. How does eToro make money? By all the suckers loosing money?

    To be down 20% on 2020 takes some doing.

  7. Ducky McDuckface has a beautiful explanation. You can make money if you have information that is not available to other market participants. This is how they do it.

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