How does eToro make money? Spreads | Fees & More

eToro is one of the leading CFD trading platforms in the world. In one portfolio, users can trade currencies, stocks, commodities, and more. They can also apply to up to 1:30 leverage for Professional Clients with spreads as low as 1 pip for EUR/USD and USD/JPY, all with advanced risk management features such as real-time alerts and customizable stop losses. It's no secret that they've been helping a lot of traders grow their portfolio, but not many people know exactly how eToro makes money.

With eToro boasting free accounts, 0% commission on stocks, and no management fees, many people are curious as to how the fintech leader stays on top. So, how does a company that offers such an affordable entry earn its keep? Surprisingly, a lot of ways.

Also did you know that the the average top investor on etoro earns 29,1% per year, you can start follow them today!

eToro makes money in the five key ways:

  1. Spreads
  2. Currency Exchange Rates
  3. Leveraged Trading
  4. Crypto Transfer Fees
  5. Withdrawal Fees
  6. Inactivity Fees

Let's deep dive into each one.

The Five Ways eToro Makes Money

Spreads

Spreads are the differences between the buying and selling prices of assets. eToro makes money through charging fees on top of currency, commodities, indices, stocks, ETFs & Cryptocurrencies.

eToro Spread Fees
Spread Fee: Spread * Price (USD) * Units

Currencies Spread Fees

Currency spread fees are one way that eToro makes money

Commodities Spread Fees

Commodity Spread fees are one way that eToro makes money

Cryptocurrencies Spread Fees

Cryptocurrency spread fees are charged once trader positions are closed. They indicate the lowest possible scenario and may occasionally fluctuate.

eToro makes money through conversion fees from their spreads

Indices Spread Fee

Indices spread fees are another way that eToro makes money

Stocks & ETFs (CFDs) Spread Fees

CFD stocks do not involve ownership of the underlying asset. In turn, this enables transactions such as short (SELL) orders and leverage. Spread is simply buys or sells. eToro has a 0.09% fee for stock & ETF spreads.

Popular Investor Spread Fees

Influential Popular Investors play into eToro's unique offering as a social trading platform. In relation to this, a simple way that eToro earns money is through the spreads. It is then applied to user accounts during the trades influenced by Popular Investors. Their Copy Trading service is a unique way to influence people, build communities, and earn them more money.

Etoro Guide - Stock Trading Online - Times International
Commissions through eToro's popular CopyTrader function is one way they make money.

eToro earns through Popular Investor spreads through Copy Trading in two ways:

  • Popular Investors opening a new trading position, pays a commission to eToro.
  • Upon replication of a trade signalled by the Popular Investor, a fee will be charged to investors. This fee is proportionate to their investment.

eToro earns from the trade of both the Popular Investor, who gave the signal, and the investors that follow suit. On top of their trade profits, Popular Investors earn fixed payments depending on their level. They can also earn up to 2% of their annual assets under management (AUM) paid out monthly. AUM is the total amount that traders who copy the Popular Investor's trade have allocated.

Leveraged Trading

To maximize exposure with little equity, traders make use of leverage. Leverage is when investors borrow capital from their broker when opening a position. Multiplied by 2, 5, or 10 times, the trader's capital is applicable to both long and short sell positions. Traders on eToro can apply to leverage to currencies, ETFs, commodities, stocks, and select cryptocurrencies.

Overnight vs Weekend Fees

Overnight Fee

eToro charges overnight and weekend fees relative to the value of the trader's position. These fees can be perceived similarly to interest payments that help cover the cost of your leverage.

eToro Overnight Fees (per night)
Overnight fee: Fee * Units

Weekend fees are triple the overnight fees because they are charged for keeping positions open on weekends.

eToro charges overnight fees for open CFD positions every night from Monday to Friday at 21:00 GMT. Overnight fees are not charged on Saturdays and Sundays. On Fridays, stocks, ETFs and indices are charged weekend fees. At the same time, weekend fees for cryptocurrencies, commodities, and currencies are charged on Wednesday.

How are eToro asset class fees computed?

There are daily calculations for the different asset class fees. While these fees are unified across asset classes, global market conditions change without notice. As a result, users can observe that asset classes change every now and then. Thankfully, any changes will only affect open positions.

Furthermore, there are also different eToro markup rates depending on the asset. Here are the formulas to watch out for:

Indices

When it comes to long positions with indices, the eToro markup is added to the number of units multiplied by the price. After dividing the results by 365, it should reflect the daily fee. With a slight difference from short positions, wherein LIBO is deducted from the eToro markup. Banks charge international interest rates or “LIBOR” for loans. The eToro markup for indices is 3%.

eToro Leverage Indices Fees
BUY (long) positions: (Units * Price) * (3% + LIBOR)/365
SELL (short) positions: (Units * Price) * (3% – LIBOR)/365

Spot metals and currencies

For spot metals and currencies long positions, the price is first multiplied by the number of units. Multiplied by the daily expression of the eToro markup (MU), it is then divided by 365. The number of units is then multiplied by the Tom-Next Rate, the standard short term rate for spot metals & currencies. For short positions, the Units multiplied by the TMR is subtracted from the fee. The eToro markup rates are 1.5% for spot metals and 1% for currencies.

eToro Leverage Spot Metal & Currency Fees
BUY (long) positions: (Units * Price) * (MU /365) + (Units * Tom-Next Rate)
SELL (short) positions: (Units * Price) * (MU /365) – (Units * Tom-Next Rate)

Spot Energy

eToro lets traders open positions on Oil and Natural Gas pricing that are not subject to expire. To offset the profit or loss made from the movement along with the Front price and the Next price, eToro applies overnight fees.

The Front Price is the Future contract with the closest expiry date, and The Next is the Future contract with the second-closest expiry date. eToro offers the price equal to the Front-month contract after the existing contract is no longer valid.

eToro Leverage Spot Energy Fees
BUY (long) positions: -{[(Markup % * Price) / 365] + [1/NumDays * (Next – Front)]} * Units
SELL (short) positions: -{[(Markup % * Price) / 365] – [1/NumDays * (Next – Front)]} * Units

Due to the measures announced European Securities and Markets Authority (ESMA), eToro follows several restrictions to help protect retail clients. eToro Professional Clients allow higher leverage than retail accounts, but they have to reach a specific criterion before being able to do us.

Conversion Fees

USD is the most common currency for withdrawals and deposits. Transactions with other currencies can be done with an additional fee. Depending on the transaction origin, conversion fees may vary.

Conversion Fees for wire transfers, iDEAL and Sofort

  • AUD – USD – 50 Pips (Deposit & Withdrawal)
  • EUR – USD – 50 Pips (Deposit & Withdrawal)
  • GBP – USD – 50 Pips (Deposit & Withdrawal)

Conversion Fees for Credit Cards, Paypal, Skrill, Neteller, RapidTransfer, Unionpay and Local Online Banking

  • AUD – USD – 100 Pips Fee (Deposit) & 50 Pips Fee (Withdrawal)
  • EUR – USD – 150 Pips Fee (Deposit) & 50 Pips Fee (Withdrawal)
  • GBP – USD – 50 Pips Fee (Deposit) & 50 Pips Fee (Withdrawal)
  • MYR – USD – 200 Pips Fee (Deposit) & 200 Pips Fee (Withdrawal)
  • RMB – USD – 400 Pips Fee (Deposit) & 400 Pips Fee (Withdrawal)
  • PHP – USD – 2500 Pips Fee (Deposit) & 2500 Pips Fee (Withdrawal)
  • THB – USD – 35 Pips Fee (Deposit) & 35 Pips Fee (Withdrawal)
  • IDR – USD – 150 Pips Fee (Deposit) & 150 Pips Fee (Withdrawal)
  • VND – USD – 25000 Pips Fee (Deposit) & 25000 Pips Fee (Withdrawal)

However, there are ways around paying the conversion fees. Members of the eToro Club have exclusive privileges that include full exemption from conversion fees for Diamond Members and 50% discount for Platinum and Platinum+ members.

Crypto Transfer Fees

eToro makes it easy to transfer funds from the eToro platform to the eToro Wallet through their Crypto Coin Transfer Service. The eToro Wallet enables traders to access crypto assets

Each blockchain provider will have it's own corresponding fee when opening a wallet with eToro. Transferring cryptocurrencies to your eToro wallet will also incur various fees and minimum withdrawal amounts depending on the blockchain provider.

eToro Wallet - Apps on Google Play
eToro earns money whenever traders transfer their cryptocurrencies to their eToro wallet. | Etoro.com

Here are the fees you may encounter when transferring cryptocurrencies:

  • BTC (Bitcoin) – 0.0005 BTC (Fee) with a min. withdrawal amount of 0.0086 BTC
  • ETHEREUM (Ethereum)- 0.006 ETH (Fee) with a min. withdrawal amount of 0.3 ETH
  • XRP (Ripple) – 0.25 XRP (Fee) with a min. withdrawal amount of 133 XRP
  • LTC (Litecoin) – 0.001 LTC (Fee) with a min. withdrawal amount of LTC
  • BCH (Bitcoin Cash) – 0.001 BCH (Fee) with a min. withdrawal amount of 0.18 BCH
  • XLM (Stellar) – 0.01 XLM (Fee) with a min. withdrawal amount of 534 XLM

Once your cryptocurrency is already in your eToro wallet, it's important to note that there will be additional fees and transaction limits. When you convert your cryptocurrency to fiat, there will be blockchain fees and additional fees, such as cash advance and foreign transaction fees from your bank.

Unfortunately, this service is also not available to everyone. Only customers who come from select countries and are at least eToro Club Bronze level are eligible.

Withdrawal Fees

Despite having a minimum withdrawal amount of $30, withdrawing at higher amounts will make the fees less noticeable. While eToro doesn't charge any clearance fees, they do charge a low, fixed fee of only $5 per withdrawal.

Inactivity Fees

Should your account not have any login activity for a total of 12 months, eToro charges a $10 monthly inactivity fee on any remaining balance.

Conclusion

At the forefront of fintech, eToro makes trading quick, easy, and affordable. They also make it easier to share collective wisdom through their social trading features, automated collaboration tools, transparency, and accessibility.

Portfolio with fees
eToro shows deducted fees for each trade on their portfolio page | Etoro.com

While not completely free, they offer an affordable alternative to traditional investing. Despite being one of the best trading platforms in the world, they're still always on the lookout for improvement. Like any service, they need to charge fees to maintain their operations, security, 24/7 customer support, and quality service. Thankfully, their fees are fair, transparent, and readily available for traders who know where to check.

There's no doubt that the next generation of traders will be benefitting from eToro's efforts to democratize investing for everyone.

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