Can you make money on eToro?

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Did you know that one of the most commonly searched terms* in Google relating to eToro is “how to make money on eToro”, this is shortly followed by “how to make money fast on eToro”, then “how to make quick money on eToro”. Since I originally wrote this article in November 2023 our Google Search Console data shows that it has been visited 53 times by people searching “how to make money on eToro” (from 681 impressions), 28 times by people searching “how to use eToro to make money” (from 257 impressions) and 21 times from people searching “can you make money on eToro” (from 700 impressions), then another 21 times from people searching “how to make money with eToro”.

This suggests to me that whilst people are doing their (very sensible) due diligence into “is eToro safe” (28 visits from 848 impressions) to see if “is eToro legit” (10 visits from 508 impressions) to make sure they are not hoodwinked by “eToro scams” (3 visits from 116 impressions) that they want to know if it is possible to make money using eToro, and if so, “how can you make money with eToro” (0 visits from 0 impressions).🤔

So, I wrote this guide so that people would get the answers to their questions. This is what the Good Money Guide is about, if you want to know something about a broker, we try and provide an answer that is both helpful and honest and succinct.

But, due to the unique way that UK financial marketing is regulated, you can’t just simply say something, you have to go through endless compliance ho har because people are apparently deemed too idiotic to think for themselves and instead of having a question answered, you have immediately contradict everything you have just said and fill an entire article with risk warnings.

This isn’t actually a new thing, it’s been around for ages, for example, when stock brokers were allowed to offer their clients advice on what to buy or sell, they had to provide three pros of a stock and also three cons. I suppose it’s not actually a bad thing either.

This article is also considered financial marketing, even though it’s now just witterings to satisfy regulatory compliance requirements, but because we have an affiliate agreement with eToro it is in some respects treated as a financial promotion.

I suspect that at some point in the future, financial affiliate agreements will be banned, or at least affiliates will be required to be regulated. Which they won’t be able to do because the FCA will require everyone to conduct suitability tests before people visit a page. By that I mean that people who want an answer to if “it’s possible to make money on eToro” they will have to complete a questionnaire, proving that they understand the risks involved in investing before they can read it.

This is stupid because, they obviously don’t understand the risk in investing, because they are trying to find out how to do it.

I’ll tell you exactly what is going to happen when that eventually happens.

All the comparison sites that list “best CFD broker”, “best trading app”, “best stock broker” will not disappear, they will simply setup agreements with companies that are not regulated by the FCA.

So new investors will instead be referred to off-shore unregulated bucket shops where there is no client protection but instead could be outright scams.

The forced regulation will, I’m afraid, instead of helping people, put them more at risk.

All that being said if you want an answer to your question, which you have probably forgotten by now, but it was (maybe) “how do you make money on eToro” you will first have to read through all the ways that you can lose money on eToro.

How to lose money on eToro

There are four main ways you can lose money on eToro, making bad investment decisions, trading with leverage, overnight financing fees, FX conversion fees and currency exposure. I’ll explain a little about each, and how you lose money because of them.

Bad investments

The most obvious way you can lose money on eToro is to make bad investment decisions. eToro is an execution-only broker and not regulated to give you advice on what to invest in so you must choose your own investments. One of the most common investments, particularly for new investors is the S&P 500. Mainly because of social media, and the mighty Warren Buffett being endlessly quoted saying that most investors should just buy an SPX tracker and be done with it.

But, even though the S&P 500 has had a stratospheric +3,000% rise since inception there are many moments when you would have lost money. For example, if you invest on the 21st Feb 2020, by the 30th of March you would have lost, nearly 40%! A bad month for anyone.

SPX 5 Year History

Trading on leverage

In the UK, the FCA requires that all CFD brokers display the percentage of their clients that lose money. We keep a record of the risk warning percentages here. It is no secret that people lose money trading CFDs, and the figure across various trading platforms range from around 50% to 85%.

So by trading CFDs with leverage on eToro, there is a very high percentage chance that you will lose money.

Overnight financing rates

If you trade with leverage you also have to pay overnight funding for keeping a position open longer than intra-day. This is because if you are trading on margin your broker is essentially lending you money to get more exposure than buying a stock outright.

For example, if you trade Lloyds shares with leverage, you can put down $100 to trade $500 worth of stock. For this you will be charged $0.16 every weekday and $0.49 on the weekend. So if you keep the position open in the long term you will lose a lot in overnight fees. Also, eToro charges a staggering 6.4% over the benchmark which is a lot more than most other CFD brokers, 2.5% over/under SONIA is fairly industry standard. Plus, you don’t earn money on short positions, so if you hold a short position you are losing money owed to as opposed to using a broker that pays interest on short positions.

eToro overnight fees

FX conversion fees

Every time you deposit GBP into your eToro account you have to change it to USD. This is one of the most annoying things about eToro and one reason, they score quite low as an investment platform. I’ll go into more detail when I talk about currency exposure next, but essentially, you are losing 1.5% of your money every time you convert GBP into USD, you also lose another 1.5% when you withdraw it. Although you can deposit for free if you have an eToro Money Account, but this is a separate app.

eToro FX conversion fees

Currency exposure

You can also lose money on eToro due to currency exposure, as you are only allowed to trade and invest in USD.

Let’s say for example you want to invest in Lloyds shares, which are priced in GBP on the London Stock Exchange. To do that through eToro you first of all have to convert your GBP into USD, so you lose money there, but I’ve already discussed that.

In this example, we’ll say we are going to buy $10,000 worth of Lloyds shares.

Now, if the price of Lloyds shares goes up by 5% that $10,000 is going to be worth $10,500.

However, if the GBPUSD exchange rate moves against you and is now 1.2575 that $10,500 is only worth £8,349 instead of £8,416 if the rate had stayed at 1.2475

If you had been able to invest in a GBP-denominated stock, in GBP rather than USD you wouldn’t have lost that difference.

Obviously, the reverse is also true, if the rate moves in your favour you can be better off.

How to make money

There are four ways to make money on eToro. You can either buy investments, short the market with CFDs, copy another investor portfolio or become a popular investor. In this guide, I’ll explain what each one is, their pros and cons and how you can profit from them.

#1 Buying investments

This is the the most common way people try and make money on eToro. If you think that a share price will go up you can buy shares in a range of over 3,000 stocks from 17 stock exchanges. The most popular stocks that people invest in are the main market US stocks that everyone has heard of like Tesla and Netflix.

One good thing about buying shares with eToro is that they are commission-free, but they are not completely free. For UK investors you have to pay stamp duty (0.5%), you also get charged when you deposit GBP into your account (0.5%) and are also charged if you withdraw your money ($5).

You can also try and make money from buying shares on eToro if you do not have a lot of money to invest as you can buy a fraction of a share. So instead of buying 1 Tesla share for $263 (as of 11/10/23) you can buy $100 of Tesla shares. This can help you diversify your portfolio and reduce your risk. The old saying, “don’t keep all your eggs in one basket” applies here.

⚠️However, on the downside, it is hard to make money investing in single stocks as prices are volatile. So if you time the market wrong you will lose money.

Another way to make money investing with eToro is to buy an ETF like the VUSA Vanguard ETF (LON:VUSA) which tracks the price of the S&P 500. These are the 500 biggest stocks in the US. Over the past 5 years the S&P 500 index is up around 57%. But beware, over the last month the index is down nearly 3%. So if you are considering investing you should take a long-term view, rather than trying to make money in the short term. It is not possible to make money quickly on eToro without being a professional trader, and even then not guaranteed.

⚠️Warning – as with all investing – past performance is no indication of future returns. When you invest your capital is at risk.

#2 Shorting the market

You can make money on eToro when the market goes down by shorting stocks, indices, or commodities with CFDs. CFDs are contracts for difference, where your profit or loss is based on the opening and closing price of a trade. But in practice, it is the same as buying or selling stocks. For instance, if you wanted to buy Lloyds shares, if you were investing in physical stock you would buy 10,000 shares, and to get an equivalent CFD position you would buy 10,000 CFDs.

The main advantage of CFDs is that you can sell stocks without owning them and profit when their share prices go down. You also don’t pay stamp duty (saving 0.5%) when you buy the shares back and you can trade on leverage, which means you can buy £5,000 worth of shares with only £2,500 on account.

If you want to reduce your risk eToro actually lets you reduce your margin rates. This is particularly good if you are hedging your portfolio by shorting the market. Say, for example, you have a portfolio of $1,000 of UK-listed stocks, and think the market will go down in the short term, but don’t want to close your positions. You can sell $1,000 worth of the FTSE (the index that tracks the 100 biggest companies on the UK stock market).

eToro shorting FTSE

⚠️Risk Warning: Trading with leverage involves high risk!

In this scenario, you can make money when the market goes down and that will offset the losses from your portfolio. You can also set your leverage from either 1x (if you want to be fully hedged with cash) or 20x if you want to free up your risk capital to be used elsewhere as you’ll only need $50 to open the position.

⚠️There are two significant disadvantages when using CFDs though. The first is that because you are trading on margin, the risks of loss are multiplied. Plus, if the market continues to go up, you will lose money if you are not long underlying stocks. Or if you are short the market on CFDs to hedge a long portfolio, you won’t make money on your investments because you will be losing on your CFD positions.

⚠️Final warning on shorting, with shorting you only make money if the market goes down, so if it goes up you will lose money. If you have a professional trading account with no negative balance protection, your losses could be unlimited.

#3 Copying other investors’ portfolios

One of the main selling points of eToro and what draws many new clients in is the ability to make money by following other people’s portfolios. I was listening to a great podcast from Jeppe Kirk whose eToro portfolio has made on average 25% a year over the past 10 years. So if you had followed him and copied his trades from the beginning you would have made pretty decent money.

Jeppe Kirk eToro Performance

But making money from social trading on eToro is just as hard as picking stocks. Historical performance is no guarantee of future results. For instance, even though his portfolio has done well over the last 10 years on average, if you had followed him during 2022 you would have lost 19% of your money. This is slightly more than if you had invested in the S&P 500 which was only down 18.01%.

Also in 2021, the S&P returned 28%, whereas his portfolio only returned 15%.

Plus, the S&P 500 is an index run but Standard and Poors, a huge institution. The most popular S&P ETFs like the SPDR S&P 500 ETF (SPY) are managed by State Street Advisors, one of the largest asset managers in the world that looks after $3.8 trillion in assets.

What happens if a trader you are following loses interest, or changes tactics? I know who I’d rather invest my money with…

⚠️ Be careful here too, if a popular investor starts losing money, so will you! You will copy their losing trades and portfolios as well.

#4 Become a popular investor and make money from your followers

The final way to make money on eToro is be become a popular trader like Jeppe Kirk and make money when people copy your portfolio (as well as from your own investments).

However, not anyone can become a popular trader. When I interviewed an old friend of mine Daniel Moczulski the UK eToro, Managing Director, he told me that they put a lot of effort into ensuring that popular traders are vetted and have a solid track record before people can copy their traders.

Using Jeppe as an example again, you can see from his profile above that he has over $50m and 22,000 traders copying his portfolio. That is a huge responsibility for an unregulated individual, especially as $50m is actually bigger than some regulated funds.

To make money as a popular trader on eToro you need to get qualified as a “Cadet” by being active on eToro for more than two months, setting out your strategy, having a visible profile, and not losing money. Once you have progressed to a “Champion” you can start to earn up to $500 a month from your followers (based on how much money is following you). But the real money-making ability comes from being a popular trader on eToro comes when you are classified as an “Elite” investor where you can earn up to 1.5% a month of annual AUC (accounts under copy).

⚠️Keep in mind that it’s also possible to lose money as a popular investor. If you are investing do become a profitable trader and you don’t pick winning investments will lose money and your capital will be at risk.

If Jeppe Kirk has $50m following him then he should be earning $1m a year from his eToro copiers…

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% 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.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

Copy Trading does not amount to investment advice.  The value of your investments may go up or down.  Your capital is at risk.

Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.

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