How eToro Makes Money

eToro is a popular mainstream platform for trading stocks, crypto, and more. But how does eToro make money? Keep reading to find out.

eToro's CopyTrader feature gets you expert-level trading insights for free.

So how does eToro make their money?

In this detailed look at eToro, find out how they make money and what fees you can expect to pay.

What is eToro?

eToro is a social trading platform founded in Israel in 2007. They support the trading of over 1,200 instruments, including stocks, ETFs, and cryptocurrency for users around the globe.

eToro is well known for their CopyTrader feature, which allows users to automatically mimic the trades of other traders. These "copyable" traders are ranked and measured by risk level, past trades, asset lists, and historic profits and losses. And you can see all of that info on their profile.

Each trader on eToro can create and share blog posts about their trades or specific assets. You can also leave comments on others' profiles to discuss analytics, trading strategy, and more.

Beyond that, eToro provides a range of educational content and tools such as a virtual or demo trading account, where traders can invest risk-free with virtual cash. All these features make eToro a solid option for beginner traders.

How eToro Makes Money

There are a number of ways that eToro makes money. Their primary source of revenue is transaction fees and the bid-ask spread applied to trades on the platform.

Transaction Fees
eToro's current fee structure is fairly straightforward and easy for users to understand.

eToro doesn't charge commissions on stock trading.

The transaction fee for cryptocurrency on eToro is 1%, charged when you purchase an instrument on the eToro platform and 1% when you sell it again.^[1]

To make this more visible to traders, eToro takes both fees into account in the profit and loss indicator for open positions. When you open a trade on eToro, you will immediately see a loss of 2% of your original purchase to reflect these fees.^[2]

Bid-Ask Spread
The bid-ask spread is a separate, sometimes undisclosed fee that amounts to the difference between the sell and buy price for a particular asset. The spread goes to eToro each time a transaction is made.

This fee is harder to determine in some cases, as it may vary depending on market conditions as well as potentially by asset, and may change from one moment to another.

While the cryptocurrency spread is undisclosed, other assets' spreads are measured in PIPs (percentage in point, the last digit in the price of a given asset), or Points (price changes left of the decimal point), as you'll see in the list of CFD spreads below:^[3]

• Currencies: 1 PIP and up
  
• Commodities: 2 PIPs and up
  
• Indices: 0.75 Points and up
  
• Stocks and ETFs (CFDs): 0.09%

Because eToro makes money from transactions, one of their main goals is to increase the number and the volume of transactions conducted on the platform. That means incentivizing trading.

They incentivize trading by offering trades and an easy-to-use platform targeted at beginners.

The more assets that eToro supports, and the more types of trades they offer, the more likely people are to use the platform.

This also likely explains the logic behind offering the CopyTrader feature free of charge. While eToro could justify charging a fee for the privilege of copying other traders, this would probably put off some potential customers and shrink their base of retail traders.

Instead, by letting users copy other traders for free, they can earn a small amount each time a copyable trader makes a transaction. Since popular traders may have copiers numbering in the thousands, a small percentage can quickly add up.

Other Fees
There are a range of other fees that eToro may charge users in certain situations.

• Overnight Fee: eToro may charge an overnight fee for CFD positions that are kept open overnight. Note: CFDs are not available to US customers

• Weekend Fee: Weekend fees are like overnight fees, charged for CFD positions kept over the weekend, and are triple the overnight fee.

• Withdrawal Fee: eToro charges a fixed $5 withdrawal fee, with a $30 minimum withdrawal for non-U.S. customers.^[4] eToro USA LLC does not charge any fees on withdrawals.^[5]

• Conversion Fee: 50 PIPs and up.

• Inactivity Fee: If a user goes 12 months without logging into their account, eToro will charge a $10 monthly inactivity fee on remaining available balances.

As we mentioned earlier, there are no fees involved in using the CopyTrader or Smart Portfolio features. Deposits on eToro are also free.

Bottom Line

As you can see, eToro makes its money through a combination of transaction fees, the bid-ask spread (which is the difference between the buy and sell price of a given asset), and a range of other fees.

If you're looking to minimize the impact of fees on your own trading profits, consider making fewer, longer-term investments and trading less often.

Since most of the fees are incurred on a per-transaction basis, this will help to reduce the amount you have to pay in the long run.

References