Although the research sounds interesting we would still need to see the methodology. One of the problems in such researches is that they test a single broker platform which may not show the whole picture – for instance the algorithm mentioned in the report needs to be transparent. I’d welcome similar research anonymously comparing results across several brokers through multi-broker platform such as Currensee.
Tel Aviv, May 9, 2012– Researchers at the MIT today revealed the results of research on social trading behaviour within the eToro investment network, that demonstrated higher gains for financial traders that responded to copy trading recommendations. According to MIT researcher Dr. Yaniv Altshuler’s research, providing the name of a specific `guru’ to copy enabled online traders to uplift earnings by 6-10% compared with trades used without social networks and 4% when compared with unguided copying where copied gurus were selected without the benefit of a specific recommendation. This research suggests that “tuning” social trading networks by providing carefully selected copy recommendations can increase gains and boosts average returns per user, while preventing “bubbles” in the market.
Normally in social trading networks individual traders pick and choose their own traders to copy based on a number of factors including instrument traded, risk levels, gain and percent of positive returns. For this research, 6000 active traders were each provided with the opportunity to use a $20 coupon to copy a specific guru on the eToro network. Matches between targeted traders and gurus were based on an innovative algorithm designed to maximize gains throughout the trading network. Other control groups that showed much smaller trading performance increases were traders who copied gurus with the highest returns, and a group where recommended traders were randomly selected without the benefit of using the algorithm.
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“Social trading is now going through a process of evolution making it more powerful than ever”, said eToro CEO, Jonathan Assia. “We are thrilled to finally have proof from a world renowned research institute like MIT Media Lab that social trading yields higher returns than individual trading. This validates our core value in which we believe that profits are linked to the wisdom of the crowds.”