eToro is one of the worlds most popular copy trading platforms. Have you ever wondered how they make money? This is my guide on how eToro makes money:
How eToro Makes Money
eToro is a privately held company so we don't have specific information on how they make money. But these are the possible ways that eToro is able to make money:
- Platform Fees – eToro charges a $5 withdrawal fee when you withdraw money from your account
- FX Transfer Fees – When you deposit money that isn't USD, eToro charges an FX fee
- Spread – eToro makes money on the spread which is the difference between the buy and sell prices.
- Overnight and Weekend Fees – When certain positions are held overnight or over the weekend, eToro charges a fee.
- Market Making – eToro most likely makes money by acting as a market maker.
- Interest – When you deposit money on eToro, they are most likely earning interest on it.
- Data – It's not yet known if eToro sells trading data to high frequency traders or market makers.
The main way eToro makes money is through the “Spread”. Whenever you open a trade on eToro, they make a small profit. The spread is the difference between the buy and sell prices. When you open a “bid” or “buy” trade, it will be opened at the “sell” or “ask” price. You may notice that whenever you open a trade on eToro it's opened at a loss. This is the spread.
Even if you open a trade through copy trading, there will still be a spread. The more trades you make, the more money eToro makes.
The spreads on eToro can be quite large, especially for crypto.
FX Transfer Fees
eToro charges a currency conversion of FX fee when you deposit funds that aren't USD. eToro is a USD based trading platform. Meaning all trades are done in USD. So if you deposit GBP or AUD for example, they need to get converted into USD.
The rate at which eToro converts funds in U.S dollars is competitive but they are still make a profit.
I've found that eToro has fewer fees than most platforms, but they do still charge some account fees. The main fees that eToro charges are a withdrawal fee and an inactivity fee. If you don't log into your account for 12 months, eToro will start charging you a monthly inactivity fee. And every time you withdraw funds you will also be charged a small fee.
Unconfirmed Ways eToro Can Make Money
When you are trading on eToro, they are acting as the market maker. What this means is eToro is providing the other side of trade. Usually trading platforms will open the opposite trade to you as a hedge. But there is no guarantee that they actually do this.
eToro knows that most CFD traders will eventually lose money. And eToro's dealing desk could use this knowledge to only hedge trades when their order book is unbalanced. We have no idea how eToro's dealing desk operates and eToro could be profiting from traders losses. This is a pretty common practice and it's almost certain that eToro isn't matching all trades in order to profit from riskier trades.
eToro has not confirmed or denied (that I could find) if they sell market data to other trading firms. Robinhood openly does this. It's part of their business model. eToro could be making money doing something similar.
Note – TheCashDiaries is not affiliated with eToro and we don't earn any commissions if you choose to join. This post should not be considered investment advice.