What is eToro?
eToro are widely considered to be one of the leading social trading platforms, having continued to grow and enhance both their customer base and their overall service since they first launched back in 2007.
Traders can now trade stocks, currencies, commodities, indices, ETFs and cryptocurrencies on eToro, but it is the copy trading feature that really sets them apart from many other brokers.
People can automatically copy the trades of other traders to potentially increase their capital without have to trade the markets themselves, and the traders themselves can earn additional profits by becoming Popular Investors and enabling other people to copy their signals.
So it is potentially a win-win situation for both the traders and the copiers (if the traders are profitable), and if you are wondering how eToro benefit from this, they basically profit from the spreads and certain other fees, such as overnight leverage fees and withdrawal fees, for example.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Positives
Trade Many Different Markets
eToro enable you to trade thousands of different markets, whether you are looking to trade stocks, commodities, currencies, cryptocurrencies, indices or ETFs.
This includes all of the major forex pairs and cryptocurrencies, as well as hundreds of stocks from many of the leading exchanges, including the UK, the US, France, Germany and Hong Kong, for example.
Leveraged CFD Trading
You can trade all of the markets mentioned above using CFDs (contracts for difference). This basically enables you to essentially borrow money, and open long or short positions using leverage.
Buy Physical Stocks, ETFs and Cryptos
In recent years, eToro have really grown in popularity because they now enable you to trade all of the major cryptocurrencies (Bitcoin, Bitcoin Cash, Ethereum, Ripple, Dash, Litecoin, etc) using CFDs, but you can also buy the actual cryptocurrency assets and hold them in eToro’s wallet as a long-term investment.
You can also buy physical stocks and ETFs, just like you can with a traditional stock broker if you don’t wish to use leverage, which therefore enables you to earn dividends on your investments and hold on to assets for the long-term without paying any overnight fees.
Copy Profitable Traders
If you have no intention of trading the markets yourself, you can invest your money into other traders and automatically copy all of their future trades.
So if you deposit $5000 into your eToro account, for example, you could choose to allocate $1000 to 5 separate traders, or you could invest $500 each into 10 different traders.
Alternatively, you could of course set aside a certain amount of capital to trade with yourself, and invest the rest of the money into other traders.
Learn From Other Traders
As well as earning the same percentage of profits as those traders that you choose to copy, you can also learn from these profitable traders and see how they trade the markets.
You will find that you can easily analyse the trades of every trader on this platform (apart from those who make their profiles private), and because of the social aspect of eToro, you will also find that many of the best traders will comment on their feeds about their trades and their thoughts on the markets, which is useful for people who are new to trading because it can be very educational.
Free Demo Account
If you are a relatively inexperienced trader, you can open an account with eToro and practice trading using a virtual money account of $100,000. This will enable you to practice opening and closing trades, and start experimenting with different strategies until you are ready to start trading with real money.
Invest in CopyPortfolios
eToro have recently introduced CopyPortfolios to their platform, which basically enable you to copy groups of top-performing traders and groups of assets based on a particular theme or strategy. Therefore this is an easy way to diversify your portfolio, and potentially achieve long-term gains if you are bullish about a certain industry or group of assets.
Fully Regulated
eToro are fully regulated in the UK by the Financial Conduct Authority (FCA), and are regulated by Cyprus Securities and Exchange Commission (CySEC) in Europe. In addition, they are also regulated by the Australian Securities and Investments Commission (ASIC) in Australia.
Negatives
Minimum Trade Size
One of the main drawbacks is that the minimum trade size is now quite high for many markets. This doesn’t apply to copiers because you only need $200 to copy another trader, but for traders, you need at least $500 to buy stocks and ETFs, $2000 to buy commodities and indices and $4000 to trade currencies. In addition, you need at least $5000 to invest in CopyPortfolios.
Fees
The costs of trading with eToro are generally very reasonable because there are no fees to pay when you open or close a trade (other than the spreads), and no stamp duty on shares or ETF charges, for instance.
However if you like to use leverage and find yourself tied to a trade for several weeks or months, the costs can quickly add up because you will be charged a small fee to hold leveraged CFDs overnight, and three times the fees at the weekend.
eToro also charge a conversion fee when you deposit money and a withdrawal fee of $5 when you withdraw money, although at least they have lowered the fee from $25, which it was previously.
Dividends
Just like many other brokers, eToro pay dividends on the official payment date for a particular stock, but unlike many other online brokers, you need to hold a position two days before the market closes two days before the ex-dividend date, which seems a strange policy. Normally you just need to hold a position when the market closes the day before the ex-dividend date.
Another drawback is that you don’t actually receive 100% of the dividend. You will only receive 70% of the total dividend for US stocks, and 85% of the dividend for non-US stocks.
Not all Listed Stocks are Available
You will generally find that many mid and large-cap stocks from all the world’s major exchanges are available to trade, but there may still be one or two stocks that are not available to trade for whatever reason.
For example, when I first joined eToro as a trader last year, I discovered that I couldn’t trade Taylor Wimpey, one of my favorite FTSE 100 companies, and if I wanted to trade Vodafone or Royal Dutch Shell, for example, I could only trade the US-listed ADRs rather than the main London-listed stocks, which is not ideal.
However this is becoming less of an issue because more stocks are being added all the time, including Taylor Wimpey (TW.L) and Royal Dutch Shell (RDSB.L), which are now available to trade on this platform.
Limited Choice of ETFs
Following on from the last point, you can currently only trade 145 different ETFs out of the thousands that are available worldwide. Therefore many of my favorite ETFs from the UK are not available to trade, and not all of the iShares and Vanguard funds are available to trade either, which are also very popular with long-term investors.
Large Spreads for Forex Day Traders / Scalpers
eToro offers markets for all of the major currency pairs, and the spreads are generally very reasonable if you are swing trading or trading positions over one or more days, or even several hours, for example. However with spreads of 3 pips for the EUR/USD and 4 pips for the GBP/USD, for instance, eToro is not really suitable for forex day traders or scalpers.
Not Available in US
Despite the fact that you can trade US indices, stocks and ETFs, one final drawback of eToro is that they are not yet available to traders who live in the US, although I understand there will be some form of offering available soon to US residents.
My Experiences of eToro
I myself joined eToro back in November 2018 and have been an active trader ever since (under the name SteadyProfits) and have just recently become a Popular Investor, so I am in a fairly good position to offer my thoughts and opinions on eToro.
I can honestly say that I have been very impressed with their trading platform and their overall service so far.
The verification process was straight forward and it was easy to deposit funds into my account, and I then found it to be very easy to open and close trades and adjust the stop losses and target prices of my open trades once I started trading.
One thing I really like about eToro is the social interaction that you can have with other traders and copiers because trading at home can be quite a lonely profession at times. It is easy to share your trading ideas and strategies and offer your opinions on the markets, and it is also interesting to gauge other people’s views of the markets as well.
So overall I would say that if you are looking for a fully regulated broker that enables you to trade CFDs and buy physical stocks, ETFs and cryptocurrencies, eToro would be an excellent choice. However it is the copy trading element that has helped them attract more than 14 million customers, and establish themselves as the leading social trading platform.
Past performance is not an indication of future results. This content is for information and educational purposes only and should not be considered investment or portfolio management advice. 81% of retail investors accounts lose money when trading CFDs with this provider.
Leave a Reply