How does eToro make money?

eToro was founded in Israel in 2007 and has offices in the UK, Australia, Israel, and Cyprus. It is now one of the world's leading social investment networks. The company aims to revolutionize how people invest and helps enhance investors’ financial education with easy-to-understand graphical content.

By 2015, eToro combined its cutting-edge, intuitive trading platform with professional trading tools for beginners and advanced traders with OpenBook, the world’s first social trading platform launched in 2010 and ushering in copy trading.

The company has several revenue streams, which we detail below.

What does eToro do?

eToro offers a social investing platform for investing in a wide range of financial assets and connects them with other investors online. Investors on eToro have access to over 3000 stocks, 15 indices, and over 250 ETFs. eToro users can also invest in more than 75 cryptocurrencies, 20+ commodities, and nearly 50 foreign currencies with copy trading and social trading.

eToro enables users to invest in stocks at 0% commission, copy top Investors, and maintain their multi-asset investment portfolios on a single platform. A demo account is available.

Serious investors can use the eToro Popular Investor Program to make additional income and enjoy the perks and rewards of being copied by other eToro users.

Staking crypto on eToro enables users who own and hold certain crypto assets to earn rewards merely by holding them.

How does eToro work?

eToro users can easily open accounts on the platform and manage their short-term and long-term financial assets in one portfolio. New investors can open demo accounts to test the waters before trading with real money in their eToro investment account.

You can fund your eToro account using various payment methods, including wire transfers, debit, and credit cards. You can use the same means to withdraw money from your eToro account.

How eToro makes money

eToro makes money from the spread it applies on trades, from overnight and weekend fees, withdrawal fees, currency conversion fees, rollover fees, and fees on inactive user accounts. eToro also makes money — ironically — from their customers’ losses!

Spread

When users buy or sell assets on eToro, a spread is applied to each transaction, which is eToro's profit margin.

The spread is calculated as the difference between any financial asset's bid and ask prices. The ask price is higher than the bid price, and the difference is the spread between the two. Any trade on eToro, whether crypto, stocks, forex, or commodities,, will have a spread. The higher the volume of transactions, the more profit for eToro.

Features such as eToro CopyTrader make it easy for customers to trade more regularly.

Overnight and weekend fees

Similar to most CFD trading platforms, eToro charges overnight and weekend fees, also known as rollover cost or swap rates. Think of these fees as a kind of interest eToro earns in exchange for the money lent to customers enabling them to hold their assets overnight and through weekends.

eToro first applies the LIBOR (London Interbank Offered Rate) to these transactions. Its overnight and weekend fees are on top of that.

How much the overnight and weekend fees are depends on the financial assets traded, the position taken — buy or sell — and trading volume.

Withdrawal fees and conversion fees

Every withdrawal of money from a user account on eToro is subject to a fee intended to cover transaction costs of international money transfers.

Withdrawals in currencies other than the US dollar are also subject to a currency conversion fee. eToro Club members may get discounts on conversion fees or have them waived altogether.

eToro’s conversion fees are measured using percentage points (PIPs). Since percentage points differ between currencies, every currency conversion adds a few PIPs to eToro’s revenues.

Inactive fees

eToro charges an inactivity fee of $10 per month for inactive accounts. Accounts are considered inactive if they were not logged into for over 12 months. The fee may differ for different countries and will be charged to the balance remaining on account. eToro will not close any of your open positions to cover the inactive fee.

Trader losses

Platforms like eToro also make money from their customers' losses.

When a customer buys a CFD expecting a decline in a share price, for example, but the price rises instead, the trader must pay the price difference between their starting and closing positions to eToro.

Since speculative instruments like CFDs can lead to significant trader losses and online brokerages can profit from them, they are required to make sure their customers are informed about the potential losses they face with high-risk instruments.

Nevertheless, people continue to trade in CFDs and other riskier assets, and many end up making losses, boosting broker revenues.

Future growth engine

From the beginning, eToro has embraced its role as a crypto pioneer, adopting new technologies at the forefront of online brokerage services and ever striving to extend possibilities and investment opportunities to potential investors.

eToro is on a steep growth trend

eToro's fourth quarter 2021 preliminary results indicate 021 full-year of total commissions of approximately $1.2 billion, with more than 100% growth over 2020. eToro’s CEO and Co-founder, Yoni Assia, commented that "We continue to see a strong increase in the number of users engaging with our platform across our global footprint and are very excited for what lies ahead in 2022 and beyond.”

eToro has multiple avenues for future growth, including deeper relationships with their existing customers, adding new customers, and launching products in new geographies.

And if the company’s history is of any indication — see eToro growth timeline since launch — the future looks bright.

MetaverseLife - New SmartPortfolio

In January 2022, eToro announced the launch of MetaverseLife, their new metaverse-themed Smart Portfolio with stocks and crypto assets.

The metaverse — a virtual world where users can move around as avatars, interacting with other people both socially and economically — likely represents the next stage of the internet’s evolution, offering tremendous and endless potential. However, as Dani Brinker, Head of Investment Portfolios at eToro says, "...adoption will not necessarily be easy or happen overnight”, and that the metaverse “will require larger processing capacity, bandwidth and improvements to hardware — headsets, glasses, smartphones and cloud services. While still in its early stages, the industry could become a $800 billion USD market, according to Bloomberg analysts.”

As the Director of Global Crypto Solutions at eToro, Tomer Niv said, the eToro team is "incredibly excited by the opportunities offered by the metaverse." The opportunities include key partnerships that strengthen eToro's commitment to metaverse prospects. MetaverseLife comprises many well-known tech names that would encourage wider adoption of the metaverse, like Apple, Amazon, Microsoft, and Nvidia, providing long-term exposure to investors in both stocks and crypto assets in the metaverse industry.

eToro’s Smart Portfolios — more than 60 offering long-term investment solutions with diversified exposure and no management fees — enable instant diversification with ready-made, fully allocated exposure into theme-based exposure to markets via bundling together collections of assets employing a passive investment approach. You can invest in eToro’s Smart Portfolios starting with an initial investment of $500. You get access to tools and charts that track your portfolio’s performance. Investors can use the eToro social feed to remain updated on the latest developments in their portfolio sector, for example, the metaverse sector.

Going public is on ice, for now

eToro’s IPO, initially scheduled for December 2021, was postponed due to turbulent market conditions. In mid-2022, the $10 billion deal with FinTech Acquisition Corp V (FTCV) was eventually mutually terminated.

eToro has always envisioned going public, a natural evolutionary step for the company, enabling eToro investors to invest in eToro stock.

Going public would help fund continued business expansion, capturing a bigger market share and expanding into new markets, continuing to innovate on products that cater to customers' evolving needs. eToro believes that being a public company means it can ”continue to be focused on our mission of empowering people around the globe to become better investors by providing them with the best possible tools to make informed and responsible investment decisions."

It may be just a matter of time till IPO discussions are back on the table, perhaps with new partners and different institutional investors.

Competitors

eToro alternatives and competitors include Robinhood, Coinbase, Public, Naga, Ziglu, Shares.io, Trade Republic, bitFlyer, StockGro, StockTwits, Alpaca, and Bitso.

Robinhood

Robinhood (NASDAQ: HOOD), based in Menlo Park, California, provides finance, trade, and cryptocurrency, allowing customers to buy and sell stocks, options, ETFs, and crypto without charging a commission. Robinhood's vertically integrated platform supports introducing new products and services, including cryptocurrency trading, dividend reinvestment, fractional shares, and recurring investments, together with IPO Access.

Robinhood suddenly became a household name for inducing chaos in January 2021 when its users, spurred on by a Reddit forum called WallStreetBets, ended up driving the price of GameStop, a mall-based gaming retailer. Robinhood was embroiled in controversy when it halted trading in GameStop and other memestocks at the peak.

Coinbase

Coinbase (NASDAQ: COIN) was founded in San Francisco, California, in 2012. It operates a secure online platform that facilitates buying, selling, storing, and transferring cryptocurrency. Coinbase’s platform allows users — including retail and e-commerce merchants and individual customers — to transact with over 150 digital currencies, including Bitcoin, Ethereum, and Cardano. They do not support trading in non-crypto asset classes.

Public

Public is building a social and community-powered investing app that enables investors to trade, manage their portfolios, and discuss opportunities with their social networks.