How does eToro make money?

In this article you can find some information about the world’s largest social trading broker, including:

• How does eToro generate earnings
• How much earnings eToro generates
• How it also makes money on commission-free trading

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(79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money)

How does eToro make money?

eToro makes money by charging a markup on the market spreads on derivates assets such as CFDs (87%), from interest rates such as rollover/swap (7%) and from various fees such as Conversion, Withdrawals, and Inactivity (6%).

Source: eToro Investor Presentation

eToro’s earnings are supported by continued growth, growth in turn supported by a business model that is in some ways basic.

eToro’s business model is based on simplifying investment options for users as much as possible. eToro has developed an intuitive and easy-to-use platform, equipped with features such as automated investments (copy trading and smart wallets) and allowing users to invest in stocks and cryptocurrencies as low as $10.

This approach has allowed eToro to grow exponentially over the years, considerably increasing trading volumes to 1.5 trillion in 2020.

According to the latest data published by eToro, earnings from trading volumes are broken down as follows:

Trading revenue

Trading gains are defined as spread gains, which is the additional cost (mark-up) that is applied to the normal market spread of the financial instruments on the platform. Trading gains also include gains from market making activities.

For example, if at a point in time the value of an asset in the market is USD 100.00 for those who want to buy it, and USD 99.50 for those who want to sell it short, eToro could show it on the platform at a cost of USD 100.50 for those who buy, and USD 99.00 for those who sell.

The additional costs of 0.50 USD for both buyers and sellers are precisely the mark-ups, and they represent the main gain not only of eToro, but of most other brokers and investment platforms in the market.

Interest income

eToro’s Interest Income, called the rollover or overnight fee, is charged daily only to those who trade CFDs and leave the trading position open even after the market closes daily. Typically, the rollover is only a few cents.

CFDs are in fact derivative financial instruments that are traded with leverage, which is the tool that all brokers (including eToro) provide to traders to amplify exposure in the market, and thus potentially increase gains and losses.

For example, with 1:30 leverage and an investment of 1,000 USD, a trader can open a position with a counter value of 30,000 USD.

The additional money “required” temporarily by the trader is then presented by the broker who, as happens in a normal loan, charges small interest payments for each additional day that the position is held open

Other commissions

In eToro you pay some management fees in addition to those related to trading activity.

• Conversion fees: these are fees that are charged by eToro when trading in a currency other than the U.S. dollar. Among them we can find deposits, withdrawals and even trading of financial instruments listed in currencies other than USD (for example, investing in UK stocks).
• Withdrawal fees: eToro charges a fixed fee of $5 to all withdrawals.
• Inactivity fee: when the user does not log into their real account for 12 months, eToro charges a monthly fee of $10 to the account.

How does eToro make money without commissions?

eToro is able to offer commission-free trading of real stocks because of the presence of other types of revenue, such as withdrawal fees, spreads, and other costs such as rollover or conversion fees that are charged on assets other than the stock market.

In other words, eToro, like all other brokers offering this service, uses the absence of commissions as an advertising lever to attract customers and convince them to sign up.

Data show that many users, in addition to buying real assets (thus paying no commissions), then also use other services where commissions are present instead (CFDs, Copy Trading, Portfolio), in addition to paying the other management fees.

Thus, although eToro does not make money directly from buying and selling stocks, it does manage to generate revenue indirectly from other sources.

What is the eToro revenue?

eToro in 2021 had revenues of $1.234 billion (+105% compared to 2020), but reported a net loss of $265.7 million (-420.5% compared to 2020).

The losses are due in large part to the massive investments eToro is making to expand the brand.

In fact, marketing expenses have almost doubled from $229 million to $524 million in 2021.

The expansion has been supported mainly by an increase in staffing: in fact, eToro’s staffing costs have risen from $37 million to $238 million.

These investments have paid off: according to the latest report provided by eToro, 2.4 million trading accounts were opened in 2021.

How much is eToro worth?

According to the latest data dating back to January 2022, eToro has a market valuation of $8.8 billion (down slightly from $10.4 billion a year earlier).

This is the most recent valuation made by FinTech Acquisition Corp V, the company that was discussing the terms of a merger with eToro for the broker’s IPO.

How much does eToro earn per client?

According to Seeking Alpha’s latest estimates, eToro earned $827 per customer on the platform in 2021.

eToro had over 28.5 million registered users as of March 2022. Of these, 2.6 million made a deposit.

Source: Seeking Alpha

Visit eToro
(79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money)

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% 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 is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.

Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

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.