eToro Review – Comprehensive and Detailed Analysis
|Minimum 1st Deposit||$200 (might change in some countries)|
|Bonus||Reliable Broker with millions of users | Demo Account|
|Leverage||Depends on the asset and the region. EU users can get up to 1:30 leverage. Users in other countries have a max leverage of 1:400|
|Free Demo Account|
|Regulation||FCA & CySEC licenses|
|Number of Assets||+2000 market instruments including cryptocurrencies, Forex, indices, commodities, ETFs, stocks, and more|
|US Traders Allowed|
What is eToro and how it works
“eToro’s vision is to open the global markets for everyone to trade and invest in a simple and transparent way”, as stated on their official website. eToro is a brokerage platform born in 2006. Since then, its growth has been astonishing. In the beginning, it was based in Tel Aviv, but now it is located in Cyprus. It also has offices in the UK and is regulated by the financial authority in that country. Is one of the leading brokers worldwide. It introduced an interesting “social trading” approach, that allows users to connect, share, and copy transactions, enriching the investment experience.
The broker is registered as a Cyprus Investment Firm (CIF) and is regulated by the Financial Conduct Authority (FCA) in the United Kingdom. With more than 5 million users in 170 different countries, they have already overcome the first obstacle of social networking platforms, getting users to use it.
How we reviewed eToro
Please note that while our review of eToro was first published in 2012, we regularly update it based on the introduction of new features to the eToro platform and our continued experience as a customer (both of which may change our view). As with our other social trading network reviews, this one is also based on using a live real money account. In our review, we also focus more on social trading and trade copying features.
What’s clear when using them is the simplicity and ease of use of the eToro social trading platform. This has always been the case, but even more so since “The New eToro” launched on November 5th 2015. The new platform is also fully mobile response, giving you the same seamless experience across all devices. It is available for desktop, tablet or mobile phone. Additionally, eToro dived into the cryptocurrency market, and it has an extensive portfolio. Investors can not only invest in Bitcoin, but they will have Ethereum, Litecoin, Ripple, Stellar, and other cryptos available. With the launch of a seamlessly built-in crypto wallet, eToro innovates in this revolutionary market.
Their aim is to make the financial markets accessible to more people and they achieve this by offering a fully integrated solution. Because eToro is both managing the social investment network and acting as a broker, investors can manage everything through the same interface (i.e. no need to sign up with a different broker).
eToro “Popular Investors”
The traders you can follow and/or copy are currently referred to as “Popular Investors”. The amount of them available is large and by joining the eToro social trading network, anyone becomes a potential “Popular Investor” (i.e. even people who only follow other people can become “Popular Investors”, and likewise, so can you). As such, eToro stays true to their vision to create a completely open network where everyone can share, learn, copy, interact and compete with one another.
Verified investors to copy
It’s also worth noting that eToro introduced a “verified” status icon for “Popular Investors”. They can obtain this by displaying their real name and photo in their profile (as verified by eToro customer services). This obviously adds some level of trust that you’re following real people and not computer robots. In addition, all traders on eToro risk their own money as well. This is obviously good, though the actual balance is unfortunately not shared and can range from $200 to many thousands.
When “Popular Traders” get copied they get awarded, and eToro made a notable improvement in relation to the reward structure last year. Before traders with live copiers used to get rewarded with “eToro bonuses” which they could only partially convert to real money, while the rest had to be used for trading purposes (leading many to use this to offset large drawdowns, which was not good for copiers who obviously didn’t have those bonuses).
Now the structure is more straightforward. Depending on the number of copies 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).
In July 2016 eToro also revamped the ‘Popular Investor Dashboard’ which now includes a customer relationship management (CRM) system that enables greater interactions between the Popular Investors and their copiers. 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 $300K in funds on the eToro platform giving them some great earnings potential.
Find Traders That Suit Your Goals and Control Your Risk Level
The tools to help you find the traders you want to follow and copy have also evolved over time. The old ‘People Rankings’ used to rank by default the best performing traders by win ratio, meaning traders with 100% winning trades (i.e. high risk because they never close a losing trade) would be near the top. In March 2014, eToro released the ‘Discover People’ tool which allows you to filter through their traders using a wider range of parameters, such as Gain Percentage, Profitable Weeks, Country, assets traded and many more. This tool is a significant improvement to the search capability on offer before, though room for improvement. E.g. some of the parameters are not clearly explained and indicators like maximum open trades or average gain per trade would be useful additions.
The information made available about the past performance of the traders you may consider following and/or copying is also kept basic, making it easy for novice investors to use, though lacking the depth more serious investors may look for. Since February 2015, eToro displays past performance as gains/losses per calendar month and year. Before that time eToro was using the modified Dietz formula to calculate historic gains. This formula was complex and confusing, meaning it was impossible to replicate and verify the gains figures. The current formula is very simple and takes into account monthly deposits and withdrawals by the traders too, in addition to the monthly differential of their account balance.
It’s not piece of cake: Analyse the stats on eToro!
In addition, you can view a proprietary 1-year risk score table, a graph with the number of eToro copiers over time, total amount of trades and profit ratio, as well as the 3 most traded instruments. You also have access to the current open trades and portfolio distribution of the trader. I.e. how much % of their balance they’ve got invested in each instrument.
Hence changing the formula and display has been a positive move from eToro, making it much easier for investors to review past performance. The full trader’s trade history is now available too, in theory at least, because it’s pretty difficult to retrieve it if the trader made many trades before (and you cannot download it for off-line analysis). This is a small negative point in our view because it means you can only verify recent P&L figure. You therefore also cannot evaluate all previous trades to get a better understanding of the trader’s strategy and trading behaviour at some critical past trading cycles. E.g. if I notice a trader who posted a large loss in a past month, I like to look at the actual trades to check if they used a rational trading strategy.
A useful recent 2016 addition to the eToro platform is the Trader Charts. These help you visualise the past performance of the traders and let you perform simulations. E.g. “what if I started copying Trader ABC with $10,000 6 months ago?”. You can also compare the trader’s performance on the chart with other traders or with other investment instruments (because copying a trader is, in essence, the same as buying a stock). E.g. “how did this trader compare against the performance of GOOG Alphabet or the GER30 index over the past year.
Once you’ve decided on the traders you want to copy on eToro you have to select how much to invest and risk. You can invest up to 40% of your realized equity in a single trader with a minimum of $100 (i.e. you cannot risk everything in 1 trader). You can also limit your risk by entering a “stop loss”, i.e. the maximum loss before you automatically stop copying this trader. While basic (i.e. you cannot specify to only copy a certain asset class per trader), the eToro money and risk management features are straightforward and easy to comprehend for novices. Your trades are also copied proportionally, meaning that if the trader risks $1,000 of their $10,000 account (1%) on a trade, only $1 will be risked in your account if you allocated $100.
In addition, eToro allows you to try the trade copying with a free fully functioning demo account too (click here to try). This allows you to follow “Popular Investors” using virtual money to evaluate and review their performance in $ gain terms. This will give you a realistic view of what you can expect.
Can a become a ‘copytrader’ on eToro and make money?
The “Popular Investors” are rewarded based on the number of copiers they have. When they have at least 50 copiers they make $350 per month. The more popular they are the more they can earn, with a maximum of 2% annually of the copiers’ funds (AUM), paid monthly. They will also receive rebates on the spreads of their own trades up to 100%. I.e. the more people they get copying them, the more commissions they’ll make. Trading at eToro can be done on a diverse range of financial instruments: currency pairs, commodities, stocks, indices and ETFs (exchange-traded funds). The amount of leverage you can use depends on the instrument.
eToro Europe Ltd which is regulated by the Cyprus Securities & Exchange Commission (CySEC). eToro UK Ltd. is regulated by the Financial Conduct Authority (FCA. Both companies also operate under and comply with the Markets in Financial Instruments Directive (MiFID).
In November 2016 eToro introduced CopyFunds, their next generation investment product. There are 2 types of funds you can now invest in:
“Market CopyFunds” which bundle together a range of financial instrument based on a certain strategy or theme. While some of them are similar to normal exchange-traded funds (e.g. invest in tech stocks) some such as “PanicMode” are more unique since they combine buying commodities (gold & silver) with selling indices.
“Top Trader CopyFunds” comprised of the best performing traders on eToro. These will obviously be appealing to investors who’re too busy (or lazy) to do their own research. E.g. instead of building your own portfolio, you just pick a fund with the traders who performed best over the past quarter.
I still prefer to do my own research when building my portfolio of traders to copy. However the Index fund of traders I invested in with another social trading service is currently outperforming my own portfolio of traders with them. This obviously shows the potential of this.
Since these funds have only just been launched we cannot make an opinion yet on the performance (we should know more in one of the next review updates). However, as a concept we really like it and it’s a nice additional investment option for eToro clients.
Costs & Fees
eToro is still free to join and use (no annual fees or commissions). The only costs you incur are the broker spreads and overnight rollover fees. The eToro spreads on each trade are arguably slightly higher than with most brokers (e.g. 3 pips for EURUSD). However, when you automatically copy trades from other traders you’ll notice (in WebTrader) that in most cases (>90%) there’s no slippage, which makes up for the higher spread.
The overnight rollover fees charged by eToro are arguably also a bit higher than with most brokers. This should be taken into consideration since most of the traders you can copy have a tendency to keep positions open for weeks or months, meaning over time these rollover fees can add up if open trades aren’t managed carefully. But eToro clearly displays the display the rollover fees on their site and before you execute a trade yourself. You also have to consider that accounts can only be opened in $ USD, so if that’s not your normal base currency you also have to take into account the USD currency fluctuation risk (unless you hedge).
If you do consider investing using real money, make sure you check the eToro welcome bonus deposit offer here (please note that they don’t always offer this, but when I last updated this they still were).
If you’re a novice trader there’s a wide range of training materials available to get you up to speed (targeted at any level). There are also weekly webcasts, reviews and daily news to keep you informed on current events. eToro’s social network is also very active and any questions you might have are normally answered very quickly by your fellow investors.
Can you make money with eToro?
The simple answer is yes, but it’s not easy. Obviously, all will depend on your risk level and targets. If you expect to double your account in 1 week, then you have to accept the risk of losing all your equity in that period as well. Our personal preference is to find low risk but profitable “Popular Investors” to copy, though these are not always easy to find. Many of them also have the tendency to leave some trades open for months with wide stop levels which means your equity will fluctuate over time and you have to see this as a longer-term investment opportunity.
However, over the past 4 years in our opinion, the average level of their top-ranked traders has certainly improved. No doubt this has been aided by the improvements to the platform, as well as the increased popularity of eToro and exposure of social trading in general.
Is it as easy as ‘sit back and relax’?
No, as some serious consideration is required to select the traders you want to copy and which meet your risk/reward level. Just selecting the most popular “Professional Investors” will not be enough. Once you’ve built your ‘people based’ portfolio you’ll have to regularly monitor the progress and re-evaluate your allocations since even traders ranked in the top 10 can get you into trouble.
E.g. investing $10,000 evenly across the top 10 eToro Gurus on May 1st 2012 would have left you with $8,778 by April 1st 2013. Doing the same with the top 10 eToro traders at the beginning of June would have left you with $9,367 by this date. However, as you can see from our 1 year eToro performance comparison tables most traders were actually profitable, and overall losses were attributed to only two traders losing their full allocation.
You may also find our eToro tips section with info on how to find the best traders that meet your risk profile.
Of course, if you’re a great trader yourself the opportunities of making money increase since you’ll get paid for everyone who starts copying you. And with the large eToro customer base, this can quickly add up to a nice extra income.
More than just trade copying
And here we come to our final review point and that is that eToro is actually more than just a social trade copying service. They want to create an environment where traders share ideas, learn from each other, trade themselves AND copy others. You can create WatchLists of the instruments and/or People you’re interested in. Your personalised News Feed includes real-time market data as well as comments and trade execution notices from other people on everything you’re interested in. And trades can be executed easily from pretty much any screen.
eToro also offers the widest diversity of instruments for you to trade on compared to other social trading platforms. In addition to the usual currencies and commodities, you can also trade major indices, stocks, ETFs, and cryptos. The benefit of this is the potential diversification of your portfolio.
How you want to use eToro (copy others or trade yourself or both) is not for us to decide. But especially since their latest platform release, eToro makes it pretty easy and simple whichever option you want to try.
eToro: Pros and Cons
eToro Review: Pros
- Simple interface
- Integrated social trading network, trade execution interface and broker
- Free, fully functional demo account
- Integrated risk and money management features
- Trades copied proportionally
- Convenient display of historical performance figures
- Can trade/copy currencies AND major indices AND commodities (oil, gold and silver) AND shares AND ETFs
- very active social network and excellent training materials
- Low slippage
- Most “Popular Investors” you can copy all display their real and verified full name & photo
- Advanced ‘Popular Investor’ dashboard and large customer base which helps in attracting ‘real professional traders’
- CopyFunds – i.e. copy a basked of other traders or financial instruments
eToro Review: Cons
- Unable to easily view the full history of all the previous trades by the “Popular Investors”
- Actual account balance of the “Popular Investors” is not shared
- For every good performing trader to choose from, there are still plenty of poor ones (most are also longer-term traders)
- Trader Finder/Discover People functionality can still be improved (though currently much better than what it was)
- eToro has higher spreads than other brokers
- Higher overnight rollover fees than most brokers
- Currently only able to manage your account in $ USD
Other brokers to consider
Conclusion: Is eToro the best broker available?
eToro is one of the most reliable and versatile brokers out there. Not hundreds but millions of investors use eToro all over the world. Its platforms and services have improved drastically over the course of the years. Therefore, eToro is one of the best choices in the financial market. Not to mention that eToro is one of the best-regulated brokers, with licenses to operate in almost every country. Its social trading features are very friendly, but a little restricting at times. But, overall, eToro is one of the most solid alternatives to invest securely.