eToro is a Cypriot platform for trading CFDs and social trading. In terms of its total number of customers and overall transaction volume, the broker is one of the largest platforms in the area of social trading. One of the company's owners is a Commerzbank subsidiary. Trading is based on a market maker model, wherein the conditions are comparable with those of other brokers of this kind from Cyprus. The low access barriers in financial, technical, and professional terms are a key feature of this broker.
eToro Review Pros & Cons
- No minimum deposit required
- Bonuses for new customers and referrals
- Almost 1,000 underlying assets
- Social trading with a large network
- Easy to understand trading platform
- 1 point spread for many large indices
- Regulation by CySEC
- Customer money can be held outside the EMU
- Market making
Broker Test: Our eToro Review
1. Trading Conditions: Market Maker with a Low Entry Threshold
- Account Fees: Free (inactivity fee after 4 or 12 months, $5 USD per month)
- Withdrawal Fee: $5 to $25
- Currency Exchange Charges: 250 Pips
- Spread EUR/USD: 3 Pips
- Spread S&P 500: 1 Point
- Spread DJIA: 6 Points
- Spread DAX, FTSE-100: 1 Point
- Spread Gold: $0.90
- Spread Oil: $0.05
- Spread Shares: Market + $0.08 to $0.61
- Spread ETFs: Market + 0.24%
Among the traders who have already given eToro a try, there are a disproportionate number of beginners. Therefore, the broker's renouncement of a minimum deposit is just as appropriate as the free account management. However, the latter is not unlimited: If a trade account is not used for a long period of time, an inactivity fee of $5.0 per month is incurred, which, however, cannot lead to negative account balances. The payout fee of $5 to $25 is a big con in the eToro review.
Trading is based on a market maker model: The prices are quoted by the broker itself, and conflicts of interest are possible due to overhanging net positions. Trading is free of commission for all underlying assets, wherefore the broker only generates its profit margin through spreads.
With 3.0 pips, the spot in EUR/USD is at a level that is to be expected for market makers. In the S&P 500, the spread amounts to 1.0 point; for the Dow Jones, it amounts to 6.0 points. For the DAX and the FTSE100, it amounts to 1.0 point each. In the case of gold CFDs, the bid/ ask spread amounts to $0.9; for the trade of oil, it amounts to $0.05. These are typical spreads.
CFDs on equities and exchange-traded index funds (ETFs) are quoted at a premium of the current market spread. This equates to $0.08 to $0.61 for equities and 0.24% for ETFs. However, these are only the minimum spreads. The effective trade conditions across the entire catalogue of underlying assets are considered a big plus in our eToro review, insofar as other market makers serve as a benchmark.
2. Underlying Assets/ Trading Platform Offering: Almost 1,000 tradable underlying assets
3. Order Features of the Trading Platform: Nothing All Too Complicated, No Extras
The broker's order form features as very simple design. It was deliberately decided to not implement the types of orders that are usually offered by conventional brokers. Users can either open a position at the current market price or enter a price above or below the current price, at which a position is to be opened. In addition, stop loss and take profit can be defined.
For beginners, who are using an off-exchange CFD broker like eToro the first time, the order form is a two-edged sword. On the one hand, it offers easy access to trading; on the other hand, a changeover to a broker with a conventional trading platform may lead to problems of conversion.
The more order options are available, the more tactical variants traders can use for active trading. However, it is indeed questionable whether beginners without trade experience should be confronted with several dozen different types of orders right away.
4. Analysis Features of the Trading Platform: Charts and Drawing Tools
eToro does not address professional chartists and developers of mechanical trading systems. Accordingly, the functional scope of the trading platform is limited to a few core elements. This also applies to the analysis functions.
Different chart versions can be displayed (for example, candlestick charts, bar charts, line charts, etc.) and reworked using drawing tools – trend lines can be drawn, for example. Both linear and logarithmic scaling are among the available display options. In addition, common technical indicators can be applied to the charts.
With this range of functions, this platform does not exceed a basic offering. In particular, there is no market scanner that allows a large number of markets to be examined for clearly defined technical criteria. The import of scripts for mechanical trading systems is not possible, as is the independent development of strategies or their application within the framework of back testing. The analysis functions of the platform are therefore a weak point in the eToro review, even though beginners can find all of the instruments that are required to get started here.
5. Regulation, Deposit Guarantee, and Risk Limitation: Light and Shadows
As with any review of off-exchange brokers located outside of Germany, this eToro review must also discuss the regulatory environment, the conditions of deposit protection, and possible additional margin-call requirements beyond the customer’s account balances.
Customers will use a Cypriot Limited Company for trading. This company is under the jurisdiction of the CySEC, the Cypriot financial regulator. According to experience, the regulatory standards in Cyprus cannot be compared to the regulatory practices at established financial centres such as Germany or Great Britain – despite the EU membership of Cyprus.
Customer deposits are held in segregated customer accounts. A clear drawback in the eToro review: The terms of business grant the broker the right to invest customer deposits with banks outside the European economic area. In the terms and conditions, the broker also points out that the legal and regulatory conditions for such banks may differ from those within the European Economic Area and that, in the event of insolvency, the credit balances can differ from those in the EEA with regard to the applicable deposit protection.
For beginners, who are giving a CFD broker such as eToro a try for the first time and who are only making manageable deposits, regulation practices and deposit protection are secondary, however. What is much more important are potential margin-call obligations: In principle, the losses in CFD trading can exceed the existing account balance, which can lead to a claim by the broker against the customer. eToro excludes additional margin-call obligations beyond the existing account balances and thus qualifies as a broker for beginners.
6. Automated Trading: How Social Trading Works at eToro
The core offer of this broker does not consist of conventional trading, but social trading instead. The CopyTrader platform allows other users' trades to be copied manually or automatically to the customer’s own trading account. In addition to the market view, the feed view is at the centre of the user interface: Traders post their trades including comments and make them accessible to other users.
The search and filter functions, via which users can search for profiles of signal providers, were thus an important part of the eToro review. In this regard, the test results are so-so: Even the so-called advanced search does not offer additional filter possibilities apart from performance, maximum DD, the composition of the portfolio, share profit months, and some other features.
A big plus: There is a multi-stage certification process for signal providers. However, the remuneration structure does not primarily provide incentives for sustainable performance, but rather rewards revenues.
From the point of view of signal providers, however, the remuneration structure is quite attractive: There are 4 remuneration levels with a monthly cut of 25% to 30% of the profit margins achieved by one’s own followers. At higher levels, which can be achieved through a defined number of followers and demands on the traded equity as well as “responsible trading,” which has not been defined in any more detail, additional monthly fixed payments are provided. In addition, the signal providers of the higher categories receive discounts on the spreads, access to a premium account, and other advantages.
7. Account Opening and Minimum Deposit: Immediately Without a Waiting Period
The account is free of charge and does not require a minimum deposit. New customers can start trading without any waiting period whatsoever: The complete verification of legitimation can be completed at a later date and requires, among other things, the electronic sending of proof documents concerning the customer’s identity and residence.
In particular, the following are required: A colour copy of the front and back of the customer’s ID card or a copy of the customer’s passport, a current copy of a utility invoice (water, electricity, gas, or telecommunications) or a current bank account statement and – if payments are made using a credit card – a colour copy of both sides of the credit card in question. For safety reasons, the eight main numbers on the front of the card and the verification numbers on the back of the card must be blacked out.
Deposits are possible by bank transfer, credit card, PayPal, Neteller, Skrill, Sofortüberweisung.de, and Giropay. Whether trading can be started immediately depends on the chosen method of payment. The anti-money laundering laws must be taken into account when requesting a withdrawal. If a deposit has been made via credit card, for example, payments up to the amount of the deposit are credited to the relevant credit card account as well.
Potential new customers who want to give eToro and social trading a try without making a deposit can also use the trading platform via the demo mode. For this, virtual credit is credited to the demo account, via which positions can be opened and closed. The broker does not guarantee that the demo-mode rates always correspond to the rates that are quoted in the real-money mode.
8. The Broker and Its Competitors: Strong Hands and Prominent Advertising Partners
eToro calls itself “the world's largest investment network.” The broker continually publishes the number of open trades of it users. This amounted to a whooping 180 million trades on one particular observation day in March 2016. A major reason for the broad reach is the broker’s international orientation, which goes well beyond Europe and also focuses on Russia as well as the Arab and Asian regions.
Since April 2015, Commerzbank is among the owners of this broker. Commerzbank acquired part of the company's stock capital through its venture capital subsidiary CommerzVentures. In addition to CommerzVentures, the Chinese financial and insurance company PING AN and the Russian Sberbank are also among the owners of this broker.
eToro is active in sponsoring and follows the example of several competitors such as markets.com or FXPro. The broker is an official partner of the British Premier League Club Westham United. Through the sponsorship of prominent teams, brokers demonstrate their financial strength and promote trust among investors.
The broad reach and the established background of the company are a big plus in the eToro review: Only brokers with a strong market position can permanently create attractive conditions for trading. In the case of strongly positioned brokers, there is also no risk of a takeover with serious consequences for the operating business or a discontinuance of business.
9. Additional Services and New-Customer Offers: Conditional Deposit Bonuses
In this regard, the broker defines “non-withdrawable amounts” (NWA) in its terms and conditions of business (item 1.22.5). The NWA corresponds exactly to the bonus credit amount and is reduced for each trade depending on the width of the spreads. The percentage of the spreads paid depends on the underlying assets that are traded. For FX majors, equities, and ETFs, the NWA is reduced by 30% of the spreads paid. For FX Crosses, it is reduced by 20%, and, for commodities, indexes and BTC CFDs, it is reduced by 10%.
For beginners who are giving a CFD broker such as eToro a try for the first time, it should be noted that deposit bonuses that follow this pattern are also widespread when taking a look at the competition. The same applies to the restrictions with regard to the payment of bonus credits. As a rule, a large multiple of the credit must be traded before a disbursement of the bonus can be requested.
The broker provides some seminars and e-courses within the scope of a designated trading academy. However, all that is offered is introductory content, which is by no means available in English for all online courses. The almost half-hearted efforts in regards to the broker’s training offerings came as a big disappointment in our eToro review, since the broker primarily appeals to beginners and does not meet their demands with its course offering.
There is a customer referral program: Existing customers who were able to convince their friends, acquaintances, or contacts from various online trading communities to open an account with this broker on the basis of a convincing eToro review will receive a credit to their own account. For example, $1,000 is awarded for ten successful referrals that are completed via a standardized mail form.
10. Customer Service and Website: Optically Appealing with Information Deficits
The broker does not provide telephone customer support: Customer service can only be reached by e-mail and fax. In addition, a live chat is available, which provided the requested response during our test, but took a relatively long time to do so.
In some regards, the website leaves a lot to be desired. The business terms and conditions are quite long as they consist of several dozen pages. The website was translated into twelve languages, while not all of the documents have been translated.
The web-based trading platform is usually very fast, but does not provide some important information and functions – especially in the area of social trading. This applies, in particular, to the possibilities for a targeted search for signal providers that offer certain characteristics.
eToro Review Conclusion
eToro is a CFD broker and social trading platform in one, which addresses all of those potential customers who want to start trading with ease and without the hassle of first dealing with the topic of trading for a long period of time. The design of the trading platform is simple and intuitive – it is much more similar to a social network than a professional trading platform.
Since the underlying assets include currencies, equities, indices, and commodities, all underlying assets relevant for new traders are offered and, given the commission-free trades and the largely fixed spreads in many areas, the overall conditions are clear. Successful signal providers receive attractive remunerations. Nevertheless, the platform does not meet the highest standards of the industry in the eyes of professional traders and professional authors of trading strategies. This is due not least to the regulatory environment and the broker’s market model.
Our eToro Review as a Test Score: B