Description: eToro is a social trading platform that lets their users share new and existing CFD positions and their investment portfolios. eToro was founded in 2007 in Tel Aviv, Isreal and has grown to offer investing and trading on 3,000 global assets (including cryptocurrencies) to 30 millions users worldwide.
eToro, despite heavily promoting cryptocurrency to novice investors is actually quite an innovative trading platform offering copy trading, social networking and unleveraged CFDs.
- Social and copy trading
- Set your own leverage
- Pre-built sector portfolios
- USD account currency online
Research & Analysis
eToro Expert Review
In this review we:
- Give our ratings based on their nearest peers
- Tell you what we think of them after testing them with real money
- Highlight the key costs, facts and figures of their accounts
In the past, I’ve been very rude about eToro, I didn’t like the way they’d gamified trading and along with Plus 500, they almost made it too easy for inexperienced traders to play the markets.
But are times changing?
A while ago, we published an interview with the founder of eToro Yoni Assai, about whether or not copy trading could be a challenger to traditional fund management. Copy trading is not new, it’s been around for years, whereby investors will copy the positions of an amateur trader in the hope of making money.
I first came across the concept about 15 years ago, when traders would follow futures traders on Strategy Runner. This of course was for professional regulated advisors to make it easier to have a wider client base and helped with execution allocations. The Strategy Runner technology was later bought by MF Global before its demise. Then came MT4, again, focussing on high-risk markets, like forex and index trading.
But one thing these platforms lacked was a community.
This is odd because the trading and investing community is one of the most focal out there. There are some hilarious bad pontificators and some very good ones across the entire investment landscape. Seeking Alpha, has some excellent lay contributors looking at stock fundamentals. LSE.co.uk (“London South East” and absolutely no relation to the London Stock Exchange) still have a vibrant community of share chat for UK small-cap stocks. Reddit, has it’s meme’s for pump and dump schemes, and even Saxo Markets, the professional trading platform, tried to introduce a social network for traders called tradingfloor.com where you could link your trading account and see and copy other traders. Covestor tried the concept for stocks in the US, but couldn’t make it work.
But eToro keeps on going from strength to strength. So what is the appeal and why do they have over 20 million users and growing?
The first thing eToro is keen to point out, when I spoke to the newly appointed UK MD, Dan Moczulski, is that eToro is not a trading platform anymore, they want to be an investing platform. I’ve known Dan for years, he knows the markets and the technology inside out and is well respected within the industry. So I spent an hour with Dan on Zoom, whilst he explained what eToro was all about and where they want to go.
When you execute a trade, unlike other trading platforms where max leverage is automatically given, the default leverage setting on stocks is zero, you can opt for more if you want. However, even though eToro buys the stock in the underlying market, you don’t get voting rights, can’t transfer the stock out, but you do receive your entire dividend entitlement (after it’s been taxed at source). For index and forex trading, though it reverts to form and leverage is set at 20x for indices like the FTSE and 30x for Forex pairs like EURUSD.
But they say, that what they are actually trying to promote is diversification in portfolios by giving new investors the tools to explore the markets. One way they try and do this is through fractional shares and the way people buy stocks. They say they want to give people the opporuntiy to buy lots of little amounts of lots of different stocks (encouraging diversification), If you have £1,000 to invest, you can buy £100 of 10 shares instead of having to figure out how many shares of company A, B & C equates to £100, if at all.
One thing though that has always irked me about eToro and one of the reasons I’ve classified it as a trading platform rather than investing account is that all trades are settled in USD. In my mind, they fall at the first hurdle as an investment platform, because, how can you have an investing account where you don’t actually own stocks, you can’t invest in an ISA, there are no SIPPs and you are hit with dreaded foreign exchange fees on every trade you make. All those things are key to an investment account.
But, Dan was quite keen to explain why this was the case. It’s a one size fits all solution. If they want to offer free trading, they have to keep things as simple as possible and using USD as a default currency solves two issues.
One, USD is a global currency and most of the trades on the platforms would be settled in USD anyway, even in the UK.
The second issue, is how they make money when they are zero commission. eToro make money on foreign exchange (roughly 0.5% per trade) and they make money from withdrawal fees. There are also some stocks that are not zero commission and CFDs are exempt where eToro makes money on the bid/offer spread. Zero commission maybe a loss leader of sorts in the UK, as whilst they earn 0.5% in conversion fees, they lose 0.5% by covering the 0.5% stamp duty charge when buying stocks. eToro says they absorb this as part of their simplicity and low cost model.
Essentially, you get what you pay for and if you want all this for free you have to compromise on something, which is everything being dealt in USD.
Perhaps, eToro’s most valuable asset is its client base. 20 million users, all with differing opinions and sentiment. Afterall, that’s what makes market. Opinion, it drives buy and it drives sellers. When more people buy the market goes up, and viceversa.
eToro has built a community of almost 20 million accounts, traders or investors. And when you open up the platform it definitely has more of a social media platform instead of a trading platform.
There are two types of community.
The first is the opinion-based, where the feed is populated with the latest views from eToro clients.
The second is copy trading. You can copy anyone you want (as long as their account settings permit it). Or you can copy what eToro call “Popular Investors”, these are investors who have applied to join eToro’s copytrader platform and aim to earn money from it.
Popular investors can earn up to 2.5% of AUC (assets under copy), or however much money other investors on the platform have chosen to allocate to copy their portfolios. However, eToro is keen to point out that once you have $15,000 copying your trades, you are vetted (not endorsed) by eToro and have to stick within risk parameters. Otherwise it would become a scammers paradise.
The thing about investing is that it’s actually quite easy, any fund manager will tell you that the key is to do your research, buy some good stocks, and then do nothing for a very long time. So as long as you do your research and pick some good investors to follow, who are following the same principle then you “should be ok”. BUT, fund managers have oversight, they have compliance officers and risk committees, so they can’t just change their mind about how and what they invest in. Of course, with some notable exceptions, cough, cough Woodford.
When you look at a potential trader to copy you can see their trading history, their risk parameters and also what they are invested in. Which if nothing else is a good place to start building a portfolio, because you can see where the best performing investors are putting their money. Which is actually a good strategy in the fund management world as well. Morningstar for instance shows the top ten holdings a fund holds. Take a look at Blue Whale for example, you can see what they are invested in and either copy them by buying the fund, or just buy the top ten stocks they hold in your own investment account. If you want to know how fund managers actually invest we have a couple of good interviews with Stephen Yui from Blue Whale and Jamie Ross from Henderson.
If you don’t know which unregulated amateur traders to follow, you have the option to buy a portfolio of aggregated “Popular Investors” diversifying your risk further, or can opt for a smart portfolio that has been put together by a professional investment firm.
Or if you want exposure to sectors there are Thematic funds, like, for instance, if you want to invest in the Metaverse, which is a hot topic right now. eToro have a selection of what they call Smart Portfolios, where they have selected stocks relevant to sectors, a bit like buying ETFs. So if you want to invest in the Metaverse, but don’t know where to start the MetaverseLife Smart Portfolio contains a basket of stocks and crypto that has exposure to the Metaverse.
This brings me quite nicely onto Cryptocurrencies. In the UK Crypto derivatives are banned by the FCA for retail traders. If you want to invest in cryptocurrency in the UK you either have to be classified as a professional trader, or by them on a crypto-exchange or platform like eToro on a fully paid-up basis.
One thing eToro has always been really good at is being first to market with new assets, they offer quite a wide variety of cryptos compared to other regulated fintechs, but also vet which cryptos they add by demand, liquidity, the tech behind them and also overall due diligence. Cryptocurrencies are too big to ignore and accounted for roughly 73% of eToro’s commission during the second half of 2021. So you can’t trade crypto derivatives, but you can invest in them with eToro, you can buy them, sell them and transfer them out to an external wallet with eToro money.
If you are one of the masses, customer service can be a bit of a pain, there is no telephone helpline and the support enquiries that we have made have generally taken a day or so to be responded to. But with 20 million customers, a great proportion, who are no doubt beginners that is no surprise. If you have enough money on account ($25k upwards), you do get access to a dedicated desk of dealers in Europe and Canary Wharf.
So if you are a small trader, eToro does offer a very innovative way to access the financial markets. It’s quite jolly on the social media feed on the platform, and it is what it is. This is what people want, obviously, as they have 20 million customers. The largest incumbents still have only hundreds of thousands in the UK and in the US a few million.
The key difference between investing in trading, is that investing is a long-term thing, trading is speculation for short-term profits.
However, even though eToro may be positioning itself as an investment platform rather than a trading platform, I’d still consider the investments on offer to be high risk, for your fun money.
I genuinely enjoyed playing with the platform and testing what was on offer. It’s game-changing, but I still think they have a long way to go before you’d allocate more than a small percentage of your overall investment portfolio with them. Your longer-term investments are in my view better off with a boring investment platform like Hargreaves Lansdown or Interactive Investors. But, it will be interesting to see how eToro matures over the years, along with their customer base.
eToro Facts & Figures
eToro Total Markets
eToro Key Info
|Number Active Clients||1,500,000|
|Inactivity Fee||$10 per year|
eToro Account Types
|DMA (Direct Market Access)||❌|
eToro Average Fees
eToro Video Review
In our video review we test the platform with real money and show some of the good and bad features on the eToro trading platform.
eToro Review FAQs:
Yes, eToro is generally good for beginners, but there are also some downsides and significant risks for those new to investing. In this guide, I’ll go through why eToro is good for beginner traders, why it’s not, and also what better options there are for new investors.
I’ve covered in my main eToro review what I like and dislike about eToro as a trading platform, which is based on my experiences using the platform and interviews with founder and CEO Yoni Assia and UK MD Dan Moczulski, but here, I’ll focus on if they are right for beginners.
Why eToro is good for beginners:
There is also no doubt that with over 20 million customers signed up, eToro are too big to ignore and are certainly giving people what they want. If you look at the trading and investing industry eToro have out-marketed and out-advertised even some of the best trading platforms, particularly for new traders and investors taking their first step into financial speculation. So here are a few reasons why eToro is good for beginners:
Very easy to use
Part of eToro’s genius is simplifying a very complex subject. They have won business by making it easy to open an account, and the trading platform and app are both very simple to use compared to some of the more established investing platforms like Hargraves Lansdown and trading platforms like City Index. For example, when you buy stocks, there are no technical analysis tools on the charts, the research tab is fairly basic, just showing the key financial performance indicators, and the news flow links out to third parties with minimal integration.
- Ready to start investing? Compare the best UK investment platforms pricing and market access
There is also an emphasis on buying a certain amount of a stock, instead of the traditional number of shares, which reduces the number of calculations new traders need to make before executing a trade.
Access to popular markets
eToro actually offers some of the fewest markets to trade, with just under 3,000 (compared to IG’s 17,000) stocks, indices and commodities available to buy and sell. But, the markets they do offer are the most popular as most beginner investors focus mainly on FAANG stocks with the most news flow. They also provide investing in cryptocurrency, although not cryptocurrency derivatives like CFDs or spread betting, which are only available to professional traders in the UK.
Social & copy trading
The social aspect and feed allow beginners to see what stocks and investments other people on the eToro platform are discussing. The copy trading feature means that if you find a particular trader’s portfolio interesting, you can opt to copy it and their future traders. It makes building up a diverse portfolio of positions fairly easy. But, and this is a big but, it’s important to note that most people on the eToro platform are amateur investors, and most profitable portfolios have done well because we have been in a bull market (a rising stock market). If you do not want to make your own investment decisions and want to invest in the long term, you are better off buying a fund run by a properly regulated fund manager which you can do so through these fund supermarkets.
Set your own leverage
Even though eToro claim that less than 5% of their business last year was done on CFDs (probably because everyone was investing in crypto), they still offer contracts for difference (CFDs). But, CFDs are a very risky and complex trading tool and only suitable for experienced investors as around 77% of retail investors (private clients) lose money when trading CFDs on eToro. But there are advantages to CFDs, such as the ability to short stocks and profit from when they go down as well as up, which can help you hedge your longer-term positions if you think the market will dip or if you think the market is overvalued.
Most of the major CFD brokers in the UK, automatically give you maximin leverage, but with eToro, you are by default given zero leverage, and it is up to you if you want to increase this. This means that if you want to trade $1,000 of Tesla (NSADAQ:TSLA) as a CFD, you need to have $1,000 in your eToro account. But if you want to take more risk, you can set your leverage to x5 which means you can buy or short $5,000 of Tesla stock with only $1,000 on your account.
Having the leverage setting set to zero by default is good for beginners because it means that you are not automatically taking the maximum risk possible without setting it yourself.
Why eToro is bad for beginners:
There are some major flaws with eToro which do not make them suitable for beginners at all. Investing and trading is not a game and should be taken very seriously, whilst eToro has gone to huge lengths to open up the markets to new investors, in some cases it is just not appropriate for people to be investing in a certain way.
No ISA account
The best way for beginners to start investing is through an ISA account. In the UK you can invest up to £20,000 in a stock and shares ISA, where the key benefit is that you do not have to pay tax on your profits. It is the first sort of account beginner investors should open as over time, if you make money a fair chunk of your profits will have to go to the tax-man. Before trading high-risk products you should consider opening a tax-efficient ISA account with on of these stock and shares ISA providers.
Only trade in USD
This is not only bad for beginners but is also bad for all eToro clients. eToro, only allow you to invest in USD so if you are based in the UK, deposit GBP into your account, then buy a UK share like Lloyds, eToro will make you convert your GBP into USD. This has two downsides; firstly, there is a fee of 0.45% to convert currency and secondly, if the USD falls in value compared to GBP you investment will be worth less.
Even though eToro allows you to set your own leverage, they market heavily to new investors. As I said before CFDs are not appropriate for beginners, so having the option to switch to a leveraged CFD position on all dealing tickets puts unnessecary temptation in front of those new to the market and may not fully understand the risks involved.
Also, when you opt for more leverage the dealing ticket doesn’t give you your full exposure, it just shows your deposit. Meaning that you are taking on more risk than you think.
Promotion of cryptocurrency
There is no doubt that cryptocurrency has been one of the most popular investments of the last two years. eToro have said that around 75% of what people are buying and selling on it’s platform is cryptocurrency. But, cryptocurrency is one of the riskiest things to invest in is as they are highly volatile (moves around a lot) and there is no fundamental value to digital currencies, meaning in theory they could go to zero at any time.
The heavy promotion of cryptocurrency will likely end in tears for many first-timers that have taken their first steps into investing online.
To see how eToro compares to other trading platforms you see our rankings of the best online trading apps in the UK here.
No, only around 5% of eToro’s trading volumes in 2021 were from CFD trading, the rest was from cryptocurrency and investing. Whilst eToro does offer CFD trading their offering is very light compared to brokers like Saxo Markets and Interactive Brokers which both offer direct market access (DMA) CFDs.
- See our picks of the best CFD trading platforms here
Yes, eToro is a trading platform where you can trade CFDs (Contracts for Difference). It is also an investing platform where you can buy shares and ETFs as an investment.
Yes, you can upgrade to professional client status with eToro. You will get less protection from the FCA, but you will get better margin rates if you want to increase your trading leverage.
- Further reading: compare professional trading accounts
Private clients in the UK are classified as retail clients. It means they are non-professional traders and investors.
- Further reading: Retail versus professional traders – what’s the difference?
Financial instruments refer to the markets or stocks you can trade. With eToro you can trade around 3,00 stocks, 75 cryptocurrencies, 27 commodities 39 currencies, 19 indices and 264 ETFs.
Data correct Oct 22
If you cannot afford to risk losing money you are thinking of trading on eToro you should not do it eToro is a trading and investing platform and it is a well-known fact that around 80% of traders lose money on CFDs. Even with investing your money is at risk and if you invest in stocks and markets that go down you will get less back than you put into your eToro account.
Copy trading means that you automatically copy the trades of other investors on eToro. It is a type of passive investment strategy, but is risky because you are putting your investing decisions in the hands-on an unregulated amateur trader.
It is free to open a trading account with eToro but if you want to start trading, you need to deposit funds. In the UK the minimum eToro deposit is $10).
Yes, a huge amount of trading and investing is done through eToro’s mobile apps. The app is available in both the Apple and Android app stores.
- Further reading: You can compare eToro’s app to some of the best trading apps here.
Yes, you can trade CFDs with eToro, but you must understand how CFDs work because they are leveraged trading products which means that you can lose money quickly when trading CFDs.
Yes. As with all investing and trading accounts, you can lose money. There is a high risk of losing money when trading with eToro as only around 20% of retail traders make money when trading CFDs. The risk of losing money is less when investing as you are not trading on margin. But as with all investing if you pick poorly performing investments or copy traders who perform badly, you will lose money.
eToro fees are not high for trading or converting currency, as they offer commission-free trading and absorb stamp duty in the UK. However, if you are trading CFDs with eToro, the overnight financing charges are much higher than other brokers.
Further reading: Overnight Financing Explained: What is it and is it important?
In the UK eToro is regulated by the FCA so if they go bust your money (up to £85k) is protected by the FSCS. However, your money is not safe from you making bad investment decisions or picking a bad trader to copy trade.
Yes. eToro charges $5 when you withdraw money. This is one way that eToro makes money.
Yes. If you make money with eToro you have to pay tax on the profits. The only way to avoid paying tax on trading profits is to trade financial spread bets in the UK.
Yes. eToro will charge you $10 a month if you do not use your account after 12 months. This is called an inactivity fee and will not take you below a zero account balance.
No. eToro does not offer tax-efficient stocks and shares ISA accounts of SIPPs for you to invest for your retirement.
- Further reading: Compare stocks and shares ISAs and SIPP providers
eToro makes money on the difference between the bid and offer spread when you buy and sell shares, indices, commodities, forex pairs and cryptocurrency. eToro also makes money in fees for depositing and withdrawing money and on FX conversions.
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