eToro Business Model | How Does eToro Make Money?

eToro operates under a matchmaking model. It is the world’s largest social investment and trade network. It brings an innovative blend of online brokerage and social networking. 

eToro connects investors worldwide to follow, share, and replicate each other’s trading activity. 

The crowd can advise them on trading currencies, commodities, indices, stocks, and Bitcoin with the click of a button.

With its detailed measurements, this platform allows customers to analyze data visually and identify top traders and display trading success. 

Users can mimic the investment portfolios of their favorite traders. For example, a top trader might receive a salary, commissions on assets under management, and lower transaction costs.

eToro’s platform is free for anyone to use without going through the traditional asset management system, so ordinary investors do not have to worry about strict client criteria, complicated onboarding and offboarding procedures, and fee-based management. 

eToro’s Financial Trading Academy also offers free online courses.

In this article, we will learn about eToro Business Model and How eToro Makes money!

What is eToro?

eToro is a FinTech platform that enables users to trade various assets, including stocks, cryptocurrencies, commodities, and more. The CopyTrader tool on eToro lets users learn from the habits of other traders.

eToro Business Model

eToro earns money through spreads on trades, weekend fees, withdrawal fees, currency conversion costs, and inactivity fees.

eToro is one of the world’s largest online brokerage firms and was founded in 2007. There are already 20 million people registered for the platform due for public release in late 2021.

How Does eToro Work?

eToro offers online trading and brokerage services for purchasing and selling financial assets.

eToro allows users to trade equities, currencies, commodities, cryptocurrencies,  exchange-traded funds (ETFs), and indexes. eToro calls this manual trading.

A user may also trade contracts for difference (CFDs), which are contracts between a trader and broker to exchange the value of a financial asset (for example, a commodity) between the time of contract expiration and the time when the contract opens.

eToro would agree with the trader to duplicate market circumstances without purchasing the underlying assets.

It depends on the nation and financial instrument with which the trader can buy and sell existing assets. 

A cryptocurrency asset is a CFD in Australia, whereas a client of eToro (Europe) Ltd can secure BUY positions with a fundamental asset (while a sell position is a CFD).

Social trading is an option along with manual trading. Social trading allows users to follow other traders and emulate their trading methods (through eToro’s CopyTraderTM technology).

As a result, the platform offers all the information related to a trader that a user may need, including its percentage of gains and portfolio composition. You can imitate up to 100 traders at the same time and invest up to $500,000.

The company’s Popular Investor program lets the company’s most successful traders earn funds from the company directly.

This site will highlight the most trustworthy and responsible traders. A commission is charged based on the trader’s assets under management (AUM) and profits.

eToro offers many instructional resources (blogs and videos) to help its customers understand the financial markets and trade assets.

You can access eToro’s platform through its website or mobile apps (available on Android and iOS devices).

There are over 20 million users of eToro in 140 countries now, using it in a variety of ways. As of today, the platform has handled more than 335 million trades.

How Does eToro Make Money?

eToro doesn’t charge commissions for securities trading or account opening or administration fees, but other methods are available to make money from it. 

eToro charges $5 per withdrawal when you withdraw money from the platform.

eToro earns money through spreads on trades, weekend fees, withdrawal fees, currency conversion costs, and inactivity fees.

eToro earns revenue from spreads as well. The business charges 0.75 percent on bitcoin and 1.9 percent on Ethereum when trading cryptocurrencies. 

eToro Business Model

Ripple charges 2.45 percent for its spreads. CFD spreads start as low as 9 basis points for stocks and ETFs and as high as 75 basis points for cryptocurrencies.

Trades made with contracts for difference (CFDs) require the trader to pay corresponding spreads and overnight and weekend fees. 

A fee for trading CFDs that remain open over the weekend or overnight is charged. 

EToro also charges a currency conversion fee of $10 per month and an inactivity fee of $10 per month. You will be charged a fee if you do not log into your account for 12 months.

Although eToro touts “no commissions,” it makes money through all sorts of means– notably CFDs and cryptocurrencies. 

A revenue strategy would have made it impossible for the company to demand the $5 billion valuations it is aiming for in its IPO.

Following are a few examples of each of these factors.

Spread

Whenever a user trades a financial instrument, a spread is the difference between the bid (SELL) and ask (BUY) prices. 

An investor applies spreads to his or her assets when they buy or sell them.

In eToro, the backend technology instantly converts BUY positions to SELL positions when they are created. 

In addition, eToro shows users’ SELL positions as BUY positions.

The spread is the difference between the bid and asks price, such as 1.3737 and 1.3739.

eToro makes its money by making a profit between the two. Therefore, when you trade any type of financial asset on eToro, such as stocks or cryptocurrencies, you will need to pay a spread.

The result is that eToro encourages its users to maximize their trading volume. Thus, services like CopyTrader incentivize trading by providing financial incentives.

eToro makes money from spreads on both CFD and non-CFD trades (where the trader owns the underlying asset).

eToro’s total revenue is generated by spreads, which account for approximately 87 percent of its total revenue.

Withdrawal & Conversion Fee

If a user withdraws money from their account (for example, by transferring back to their bank account), they will be charged a withdrawal fee.

Transferring money overseas can be offset with this payment. The minimum withdrawal amount is $30 to incur the $5 withdrawal fee.

Users who wish to withdraw money from the site in a currency other than the US dollar are charged a conversion fee.

Percentage in points (PIP) is a way to measure conversion fees. It is the difference between the two percentages.

A percentage increase of 5%, for example, would result in a rise of 10% in what is being assessed.

The exchange rate of percentage points depends on the currency involved. If you convert USD to EUR, for example, you will gain another 50 percentage points.

If you are an eToro Club member, you either receive a discount or are entirely free of conversion fees depending on your tier.

Overnight & Weekend Fees

eToro, like many other CFD trading platforms, imposes what is known as overnight and weekend fees (also referred to as swap rates or rollover costs).

eToro charges these fees in exchange for the money it lends to the user to keep the assets overnight or over the weekend.

It depends on the type of instrument traded, the type of position held (BUY/SELL), and overall trading volume. Rollover costs can change based on global market conditions.

Additionally, eToro uses the London Interbank Offered Rate (LIBOR). Overnight or on the weekend, banks will charge each other LIBOR interest rates if they borrow money.

Inactivity Fee

Customers who have not logged into their account in the last 12 months will be charged for inactivity.

eToro Business Model

The fee is $10 per month (prices may vary per country) and is applied to the remaining balance.

The user’s open positions are not closed by eToro for eToro to match the price.

Is eToro Legit?

eToro is regulated mainly by the Financial Conduct Authority (FCA) of the United Kingdom (Financial Conduct Authority). ASIC regulates eToro in addition to the FCA (Australian Securities and Investments Commission). The CySEC is also in charge of it (Cyprus Securities and Exchange Commission).

Is eToro Available in the USA?

eToro began providing its services to Americans in 2018. It is currently in the “early stages of its US debut,” with only the Virtual Portfolio available in some markets. Alabama, Washington, and New Jersey will be among the 44 U.S. states to offer eToro by August 2020. 

The SEC has registered eToro USA Securities as a broker-dealer. However, current regulations prohibit it from providing services to U.S. citizens residing outside the nation.

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Success Story of eToro

eToro was founded in 2007 in Limassol, Cyprus, by brothers Yoni (CEO) and Ronen Assia and David Ring.

Trading and investing were essential to the Assia family even when they were in their youth. Yoni’s father, who worked in finance, taught him how to trade stocks at 13.

Meanwhile, he became fascinated with all things computer-related. So he wrote software using the Magic programming language during his adolescence (also called UniPaaS).

His first business was founded in 2003 after completing his Computer Science studies in Israel and his obligatory army service.

CRide developed a hardware system for recording roller coaster riders. A booth would then be set up in which the footage can be purchased after it has been transmitted wirelessly. As a result of Yoni and his team winning several significant contracts (such as Paramount Parks), the team could travel the world and earn money.

The potential size of the CDRide business was, however, somewhat limited. Yoni’s aptitude for trading financial assets prompted him to start a new enterprise in the financial sector.

There were very few trading platforms that were easy to navigate, charged exorbitant fees, and were inaccessible to most people at the time. 

With his brother Ronen (an expert in product management) and David Ring (over 20 years experience in software engineering), Yoni set out to change this.

Among the investors is the son of former Israeli president Shimon Peres, who provided $1.7 million in the initial round of funding.

eToro finally launched to the public in late 2007 after months of hard work. Forex trading was initially eToro’s sole focus, specifically the US Dollar, British Pound, Australian Dollar, Euro,  and Japanese Yen.

The team also put a high emphasis on simplifying the forex trading process and gamification. Several games were available, including Dollar Trend (in which users raced the dollar against other currencies) and Forex Match (users selected which currency they believed would go up against money they thought would go down).

Virtual money worth $100,000 would be available to users. As soon as a user registers to invest real money, a partner brokerage executes the trade (RetailFX or IFX Markets at launch). At the time, eToro did not possess the required broker license.

Gamification features on eToro attracted attention but did not lead to a long-term engagement. Serious investors look for charting tools and lightning-fast trade execution, not the game.

As a result, eToro’s focus shifted to offering traders everything they needed to make trading easier. eToro added commodities trading in 2009 as part of a $6.3 million Series B  round.

A year later, eToro introduced the OpenBook platform, which catapulted the company to new heights. The platform allowed users to publish and share their real-world trades. Other traders could then replicate these trades.

CopyTrader became the name of this feature. eToro’s CopyTrader function was utilized by over two-thirds of its users by 2013. 

eToro added the ability to trade company stocks the following year, bringing in even more (copy) traders.

The company also achieved another significant milestone in January 2014 when it began trading in Bitcoins. Several additional cryptocurrencies have been added since then.

Cryptocurrency trading was legitimized by eToro and other platforms such as Coinbase in the early 2000s. The company’s user base has grown from six to nine million since the 2017 Bitcoin craze, in particular.

Select users of eToro in certain countries can now own the assets they purchase (stocks or cryptocurrencies). 

CFDs were the only investment option available to users previously. In addition, eToro eliminated commissions and management fees associated with stock trading to respond to Robinhood, a popular, commission-free platform.

The Cyprus-based company had a very successful year in 2020. The government stimulus checks and stay-at-home orders boosted trading volumes on several online trading platforms, including eToro. As a result, the user base of eToro increased by over 7 million in 2020 alone.

Several GoodDollar token users have already begun receiving universal basic income through the company’s good dollar token (G$).

The accumulation of that goodwill and the company’s continued expansion efforts led to the announcement that eToro plans to go public in March 2021.

A merger between the company and FinTech Acquisition Corp. will bring it public. The company is structured as a unique purpose acquisition company (SPAC), and its valuation is $10,4 billion.

eToro employs over 2,000 people in eight different countries, including China, Gibraltar, Israel, and the United States.

What is the Funding & Valuation of eToro?

The eToro venture capital fund has raised a total of $272.7 million in 12 rounds, according to Crunchbase.

Several noteworthy investors include Spark Capital, CommerzVentures, SoftBank, Fidelity, China Minsheng Financial Holdings, and Korea Investment Partners.

What is the Revenue of eToro?

eToro is expected to become a NASDAQ-listed company through a merger with a SPAC. eToro is estimated that the new company will be worth $10.4 billion. 

eToro reported revenues of $650 million in 2020, increasing 147 percent over the previous year. It expects to reach a little over $1 billion in revenue in 2021.

Key Takeaways from the eToro Business Model

eToro is a financial services company based in Israel that specializes in traditional and cryptocurrency investments.

eToro’s mission is to provide online traders with easy access to free and easy-to-understand trading platforms.

The majority of eToro’s revenue is derived from commissions paid on the spread between the bid and ask prices. There are no exceptions to this rule, no matter what kind of position is available.

Furthermore, eToro charges fees for overnight and weekend storage of loaned assets. A withdrawal fee, currency conversion fee, and inactivity fee are also collected from users.

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