If you’re thinking of joining eToro then read this first.
We give you an honest and trustworthy insight on what you should know.
Up-to-date at summer 2018.
Is your money safe with eToro?
Is eToro a scam?
We, here at the Shark, can assure you that eToro is not a scam.
In 2018, the company received a valuation of $800 million and raised $162 million to expand operations into the USA.
Along with the robustness of the company, eToro’s commitment to technology is clearly evident through their incremental tech updates and their tech roadmap.
Precautions are taken to ensure the funds and personal information of clients are safe. Traditional funds remain secure in Tier 1 European banks.
Then there’s the withdrawal process. Here at the Shark we’ve used eToro’s withdrawal function 4 times and it’s been quick and efficient. There is, of course, a $25 charge per withdrawal, but hopefully you’ve racked up some good profits by the time you withdraw. We prefer to see it as a minor overhead to the profit-taking.
eToro is like the Amazon of trading, it’s easy, fun, and there’s lots of choice! Why would you – not – want to use it?
If you’re new to trading, especially trading cryptos, eToro is a brilliant and convenient place to get started.
Where is eToro regulated?
What regulation authority licenses eToro?
eToro is a colossal global platform which continues to grow exponentially. This reaffirms how safe your money is with them. But, a savvy investor wants to know what would happen if it did collapse? Let’s help you there:
EU and beyond
The Cyprus Securities and Exchange Commission (CySEC) offers it’s services, purported to be €20,000, to users within the EU, aswell as outside of it.
Users depositing more than $5,000 can contact firstname.lastname@example.org to transfer their account to the UK eToro and in doing so become covered by the FCA (£50,000).
Users in Australia operate through eToro AUS CapitalAustralia Pty Ltd. authorised by the Australian Securities and Investments Commission (ASIC). eToro Australia arranges for its clients to be provided services by eToro Europe.
eToroUSA is operated by Tradonomi LLC, which is regulated by the National Futures Association (NFA). Currently eToroUSA is not active and eToro is not accepting clients from the USA.
You should remember that there are no regulations for cryptocurrencies. Because of this, if you trade cryptos, there is no insurance from the investor compensation schemes within the UK or Cyprus.
Quick links to the eToro licenses
We’ve put together a list of links for the licenses and registrations here:
- For users in Europe – CYSEC:
- For UK users – FCA:
- For Aussie users – ASIC:
What countries does eToro operate in?
Does eToro operate in my country?
Can I join eToro?
eToro is one of the most globally accessible Social Trading platforms. It allows investors from nearly every country to reap the benefits of smart trading. However users from certain countries will not be able to use the platform for various reasons. (Also, remember, if users from other countries visit a country on the exclusion list they may have problems accessing their account.)
This is the current exclusion list:
- Korea (DPRK)
In addition, the USA is currently excluded.
How does eToro make money
Possibly the linch-pin of eToro’s proposition is the way everything is so easy and convenient for the user. Everyone loves free stuff right? When you start copying traders it feels as though you’re using the platform for free – there are no subscription fees whatsoever! Here at the Shark, we feel this approach is a big factor in their success story. It’s veeery user-friendly.
But there’s no such thing as a free lunch right? Of course, eToro need to make money to continue offering their service. They make their money on the Spread. The Spread is the difference between the Buy and Sell price. You pay a spread when you make a trade through any broker you choose anyway – so you might as well use eToro as broker and use their awesome Social Trading platform at the same time!
For eToro, this is business genius. The more copiers a trader or Popular Investor has, the more they get paid.
Let’s break this down a little: when a trader or Popular Investor opens a new position, a Spread commission is also paid to eToro. But also, on all the accounts of their followers, these trades will also be opened, in addition to the subsequent Spread commissions payments.
So, eToro gains from the spreads of the trader or Popular Investor that initiated the signal, and by all those followers who copied it.
This informs the valuation of the company at $800 million and actually gives confidence that you’re not going to loose your money investing with them.
Copy Trading on eToro
To be honest, copy trading on the playform is a joy. This is where the fun begins. Click on Copy People on the sidebar:
and you can take a peek at some of the Traders presented on the platform’s quick-look-up categories. These include:
- Editor’s Choice
- Top Investors
- Most Copied
- Lower Risk Score
- Higher Risk Scroe
Best of all, you can use the Advanced Search to really drill-down on all the good stuff like Time Period and Drawdown.
Here we’ve put together some ideas of tried and tested criteria we’ve used over the years.
Minimum Time Period
Any person can get lucky and make one or two good trades. Some traders can even get lucky for a year! But it takes skill to make money consistently from trading. So don’t copy trade anyone who has less than 12 months of stats on the platform. This way you can really evaluate a trader over the longer term.
It’s not really worth copying a trader who makes a return of just 1% a year. On the other hand though, you also don’t want to copy someone who has to high of a return. Why? Because it’s a dead giveaway that the trader is potentially using too much leverage and using too much of their capital on each trade. Here at the Shark, we tend to only copy trade people who have returns of around 20-50%.
eToro uses a risk score to let potential investors know how risky a potential trader will be. The lower the score the better. The score is calculated using their own complex algorithm. Some of the factors taken into consideration are based on the markets the investor trades in (Bitcoin will give a higher score, while bonds will give a lower for example), the leverage, the diversity of the instruments and the % of capital allocated to each trade.
Don’t put too much emphasis on this, we’ve seen traders with low risk scores sustain huge drawdowns further down the line. Remember the adage: “past performance is not an indicator of future success”. It’s actually very true!
We think Drawdown is the most important factor to consider. The lower the drawdown the better. A weekly drawdown of less than 10% is a good place to be. This means that the difference between the highest and lowest points is less than 10%. All traders will drawdown at some point – it’s just how trading works. Just don’t copy people with high weekly drawdowns as it means they aren’t very good at risk and trade management.
Both the eToro web platform and mobile app are easy-to-use, intuitive and easy to get your head around. The easy management of the platform and your portfolio is probably the best thing about eToro.
A breeze – exceptionally well designed.
Just the fact that you can so easily trade instruments like Bitcoin (see portfolio screenshot) along side your copiers is really cool.
Other big pluses include:
- Unlimited demo account
- Fully integrated broker
- Global, active community
- Wide range of underlying assets
- Payment of share dividends
We love it, and here at the Shark, we probably check our eToro account a little too often!
To be honest, it’s hard to identify many problems with the eToro service. With a little head-scratching we’ve come up with one or two:
- Adding more funds copying your trader is tedious
- Wide presence of non-professional traders
- Spread and roll-over fees higher than average
- Difficult to add more funds to your copy of a specific trader
- Day-Trading discouraged
Adding more funds copying your trader is tedious
A bit of a let down by eToro here, you would have thought it would be a little better. Here’s the rub. If you want to increase the money copying one of your favourite traders – any funds added to the copy will only be assigned to new trades.
So if you add a large sum it will likely sit idle in unassigned funds for quite some time.
However, if you wish for your additional funds to be allocated to open trades – you probably do! Then you have to stop copying and then copy again with the additional funds added.
Only do this if your copy is currently in profit.
Please be aware you will have to pay the Spread again.
Day-trading strategies are limited given eToro’s Risk Score algorithm penalises day trading. Generally day traders will be trading a handful of securities on a given day. And for these securities day-traders generally trade bigger, or with more leverage. eToro penalises against this. The etoro risk algo favours Portfolio Management style investors who have small portions of capital assigned to a large number of instruments rather than day-traders.
We would like to see a risk management structure for day trading.
eToro Copy Funds
eToro launched their CopyFunds product in 2016. Copy funds are practically investment funds, but under the hood, they are CFD portfolios. The funds are automatically rebalanced every month and managed for free by eToro. But the minimum investment amount is $5k. So this is more of a serious long term investment for those with larger amounts of capital. You can invest in CopyFunds through the web trader and you can buy into and sell out of your position at anytime.
There are three different types of copyfunds you can invest in on eToro and these are explained below:
These funds group together a number of assets based around a common theme. For example the CRISPR CopyFund invests in companies that are developing CRISPR biotech. It’s a great way to gain exposure to certain markets that you believe in. At the time of writing the CRISPR fund has seen good gains and it’s also an area of pharma we, here at the Shark, believe in whole-heartedly.
These CopyFunds group together the star traders on eToro and allow you to invest in them all. If you’re too lazy or busy to build your own portfolio using the tips above, then you can let eToro do the picking for you. Another bonus is that eToro will automatically rebalance everything for you.
Third Party CopyFunds
eToro opened up CopyFunds to select third parties in 2017. This feature allows fund managers to put together their own fund strategy and offer it through eToro.
Here’s eToro’s CEO to explain more about CopyFunds:
eToro Popular Investors
Traders you copy on eToro are “Popular Investors”. This is a term used to identify the trader’s participation in the company’s Popular Investor Program. This is a tiered reward scheme
In keeping with eToro’s pluralistic vision of a network where anyone can share, learn, copy and interact with each other – anyone can become a Popular Investor (even you) (and even if you are only following other traders!).
Depending on the amount of copiers they have, they get fixed monthly commission payments, while the top “elite” traders get 2% annually of the funds under their management plus commission free trading (i.e. no spreads). This, together with the fact the there are now over 5 million users on the network, only helps in attracting more professional traders wanting to make some extra money from their trading skills. Many now manage over $500K in funds on the eToro platform giving them some great earnings potential.
Obviously all traders on the platform risk their own money as well. This means that all Trader Profile’s detail stats generated from real money trades. This is obviously good, though the actual balance of their accounts is unfortunately not shared and can can range from $200 (the minimum deposit value) to many thousands.
Cryptocurrencies on eToro
In January 2014, eToro launched bitcoin (BTC) trading, becoming one of the first mainstream trading platforms to embrace cryptocurrency. But, really, they began getting involved in the crypto scene even earlier than that.
Today, eToro trades the top 10 cryptocurrencies by market cap, and more than half of it’s users are trading cryptocurrencies on the platform.
Inevitably, cryptocurrency trading has turned into a profitable business for eToro. Between 2014 and early 2017, only 5 percent of users were trading cryptocurrencies. Then in March 2017, Ethereum (ETH) was added along with five more coins in September 2017. At that point, there was a surge of cryptocurrency trading on the platform. Since then, eToro has become the go-to platform for buying cryptocurrencies like Bitcoin in early 2018, as it allows you to invest in Bitcoin without a lot of the technical knowledge you might need when using an exchange.
Want to learn more, check our blog post here.
Can I use Metatrader with eToro?
eToro do not facilitate use of MetaTrader. All trading is done on their platform.