How eToro Makes Money and When It Might List

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Dec. 28 2020, Updated 11:13 a.m. ET

According to some reports, eToro might look at a listing in 2021. eToro is an Israel-based fintech company that focuses on social trading. Most of the companies that listed in 2020 and many companies that plan IPOs in 2021 are making losses. Where does eToro stand on profitability and how does the company make money?

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Several fintech companies including Root Financial and Lemonade listed in 2020. Chinese fintech company Ant Financial was set to become the biggest IPO ever before it was stopped by Chinese regulators. Affirm is another fintech company that plans an IPO early in 2021 after delaying its IPO in December 2020.

etoro makes money
Source: eToro Facebook
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eToro is legit

eToro is legit and is governed by several regulators including the U.K.’s FCA (Financial Conduct Authority). Apart from the FCA, eToro is governed by ASIC (Australian Securities and Investments Commission). It's also governed by the CySEC (Cyprus Securities and Exchange Commission).

eToro is available in the U.S.

eToro started offering its services to U.S. citizens in 2018. According to the company, it's in the “initial phase of the US launch, and only the Virtual Portfolio is available in some states.” As of August 2020, eToro is available in 44 U.S. states including Alabama, Washington, and New Jersey. eToro USA Securities is a registered broker-dealer with the SEC. However, according to current guidelines, it can’t provide its services to U.S. citizens residing outside the country.

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What eToro lets clients do

eToro is an online broker that lets its clients trade in stocks, indices, cryptocurrencies, and ETFs. It also lets you copy trades and do social trading. The company is the world’s leading social trading platform. If you aren't well versed with social trading, it's the practice of copying the trades of experienced investors. You can choose from pro traders on the platform based on their past performance. 

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You can also select traders based on their trading strategies including long strategy, long-short strategy, and multi-strategy. eToro has a patented CopyTrader™ technology. It also offers a collection of CopyPortfolios that implement the strategies from the platform’s leading traders.

How eToro makes money

While eToro doesn't charge a commission for trading in stocks or any account opening or management fees, there are other ways that it makes money. For example, there's a $5 fee whenever you make a withdrawal from eToro.

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eToro also earns through spreads. While trading in cryptocurrencies, the company charges a spread of 0.75 percent on bitcoin and 1.9 percent on Ethereum. The spreads are 2.45 percent on Ripple. The spreads on trading CFD on stocks and ETFs is 9 basis points, while it starts at 75 basis points in cryptocurrencies.

While trading in CFDs (contract for difference), traders pay the spread as well as the overnight and weekend fees. The overnight and weekend fees are charged on CFD trades that stay open overnight and over the weekend, respectively. Apart from these charges, eToro also charges a fee for currency conversion as well as an inactivity fee of $10 per month. The fee is charged if you don’t log into your account for 12 months.

While eToro prides itself on “no commissions,” it earns money through other methods, especially when using exotic instruments like CFD and cryptocurrencies. If the company didn't have a revenue model, it wouldn’t have commanded the $5 billion valuations that it's reportedly aiming for in the IPO.

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