eToro is probably the most popular online stock trading platform for people curious about starting online trading in 2018. With an easy to use Facebook style interface and the prospect of “easy money” via its CopyTrader and CopyFunds system, it’s easy to see why eToro is especially attractive to beginners. But does it live up to the hype? Is it really easy to make money simply by automatically copying top traders and investors? We looked at the reality behind the headlines in our in-depth eToro review 2018. Note that if you’re interested in stock trading on Mac, you’ll probably also find our guide to top stock trading software on Mac useful too.
eToro Review: What is eToro?
Big time trading in stocks and shares has traditionally been the preserve of Wall Street traders but a combination of financial deregulation and the internet has brought stock market trading to the masses. eToro has taken that one step further and made dealing in Forex, stocks and shares easy enough for anyone to profit from. The question most people want to know right from the start however is can you make money with eToro? The answer is a definite “yes” but with a big caveat – you have to know how to use it properly. There’s no such thing as “easy money” in online trading but eToro certainly makes it easier.
Imagine if you mixed Facebook with a stock trading platform and you get a pretty basic idea of what eToro is all about. Although some other trading platforms have copied the eToro social trading model, eToro was the first to do it back in 2010 via what it then called the “OpenBook” social investment trading platform. eToro has in fact been in the trading business since 2006 when it was known as RetailFX. Although RetailFX started life as a Forex trading platform, it was eventually renamed eToro and now allows you to buy anything from Forex, stocks and shares to mutual funds with a user base of approximately 5 million traders worldwide.
It’s no exaggeration to say that if you entered the market at the right time, you could effectively make money on eToro by simply signing up for an account, making a few clicks to copy top traders and instantly start making a profit on your invested capital. The reality is that you have to invest time in choosing your top traders carefully and then monitor them closely but by doing so, you can realistically expect steady returns on your investment – certainly a lot more than leaving it in the bank.
For example, after a month of investing around $73,000 virtual currency, our profit was just over $7,000 (see screenshot below) but throughout the month profit fluctuated to more than double this. This was partly due to copying traders who were having a particularly good month due to the boom in crytpocurrencies such as Bitcoin and Ethereum but there were huge peaks and troughs during that time and you should be prepared to ride out the troughs.
One thing to remember is that it’s your risk when you copy a trader – you can’t blame them if things turn sour and the market turns against them. What we like about eToro though is that you can easily interact with traders via their wall, similar to how Facebook works. Traders can justify trades to copiers this way if they want to, share interesting or exciting news about a stock or generally just socialize with others.
There’s no eToro in the US
For readers based in the US, it’s important to be aware from the start that eToro is not available in the USA. This might sound surprising in the home of Wall Street but its due to strict regulations on what’s known as “CFDs” (Contract For Difference) in the US. This applies to all trading and gambling platforms in the US like eToro that use spreads and you can read more about why it affects US users only in this Forbes article. There is still a dormant eToro USA site however which states that eToro is a registered broker in the USA and regulated by both the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). It seems therefore that eToro plans to operate in the USA but legal obstacles mean it may not be for some time. For US users, we recommend reading our guide to other stock trading platforms for Mac which features many other services that are available in the USA.
Is eToro a scam?
We can guarantee you that eToro is definitely not a scam and because it operates worldwide, it is regulated by multiple agencies. Wherever you are located, eToro will be regulated by at least one financial authority in your region. In Europe for example, eToro is regulated by both CySEC in Cyprus and in the UK by the Financial Conduct Authority (FCA) in the UK. It also complies and operates under the EU Markets in Financial Instruments Directive (MiFID). In Australia, eToro is regulated by the Australian Securities and Investments Commission (ASIC). As such, eToro has to comply with strict financial regulations just like a bank does.
We have however noticed that there are some eToro complaints and reports from users claiming that “eToro is a scam” regarding their customer service and withdrawals. Many complaints seem to over problems with payouts because users have not verified their address and phone number with eToro. Until eToro has verified your identity, it will not payout on any profits so it’s important that you make sure you submit the right documents (more on this below). If you don’t like the idea of eToro requesting a copy of your passport or national ID for identification purposes, then it’s definitely not for you. Unverified accounts are limited to a maximum deposit of $2250 until verification is complete.
Claims that eToro is actually ripping-off users by somehow manipulating market data simply don’t stand-up to scrutiny however. The reason for this is that eToro has a vested interest in users making the money – the more money you make, the more money eToro makes from spreads (see section on how eToro makes money below). All eToro’s financial instruments are based on the same stock markets and indices that other trading platforms are based on. The only difference is the price of their spreads compared to other stock trading platforms.
The bottom line is that eToro is legit but profit and loss is entirely down to how you use it. eToro can help you make money but it can’t be held responsible for any money you lose.
Is it easy to make money from eToro’s CopyTrader system?
What makes eToro stand out from the competition is it was the first to pioneer “Social Trading” and in particular, the CopyTrader system which simply allows you to copy the trades of top traders and make money with no prior trading knowledge. It sounds too good to be true and the reality is that it’s certainly not quite that easy but if you choose traders wisely, you can definitely make decent returns on your investment. The eToro CopyTrader system is perfectly legit – you just need to know how to use it cautiously and effectively which we’ll go into in more detail later in this review.
However, you should be aware that no trader no matter how good they are can predict the direction of the markets over the long-term, especially when it comes to something as volatile as Forex. Even if a trader has millions of people copying them, it can all go horribly wrong in an instant. A good recent example is the Brazilian stock market which had been making big gains in 2017 and then suddenly plummeted 10% on 18th of May and was even temporarily shut down as news of a political scandal broke. The financial markets are extremely sensitive to political instability and as we’ve seen with political shocks such as Trump and Brexit, are increasingly hard to predict for political analysts and stock traders alike. This is why it’s extremely important to use stop-loss (also known as stop-outs) to automatically pull put of trades if the market takes a sudden turn for the worse. As an added safety measure, eToro also only allows you to invest up to 20% of your equity in one trader so avoid the risk of losing it all if it all suddenly goes wrong for a top trader.
Finally, there will always be traders out there looking to make an easy buck. This means that statistically, they may appear successful but behind the numbers they are hiding trades that are either incredibly risky or that could blow up at any minute. In the past, traders could appear successful by not setting a stop-loss in their trading but eToro has now made this much harder by using a traders percentage “gain” over a set period of time as a barometer of success. We look at how to avoid copying scam traders later on in this eToro review.
How does eToro make money?
eToro is completely free to use although you need to sign-up with a minimum of $50-1000 depending on your region. However, you can sign-up and use a demo account absolutely free with no investment of real money. There are also no commissions on withdrawals or deposits (although there are withdrawal fees for withdrawing profits from your eToro account). In Forex trading, eToro makes most of its money from what’s called the “spread” – the gap between the buy and sell price – measured in “pips” – that it leverages on investments. This means that you pay above the odds for trading on eToro compared to other stock trading platforms but unlike other services, there’s no direct commission to pay on trades.
Bitcoin transactions for example include a 225 pip spread but currencies such as EUR/USD, USD/RUB USD/CHF and USD/CAD are typically 3 or 4 pips but this can go a lot higher for less commonly traded currencies. eToro also charges a very small fee for positions held overnight. eToro’s spreads and fees are frequently subject to change though and you can check the latest fees here. It’s worth reiterating that eToro has a vested interest in making sure that you make money because the more money you make, the more it makes from spreads.
How to sign-up for a free eToro demo account
Although eToro doesn’t have a Mac desktop client, it works on any platform or computer because it’s completely browser-based. This in itself is a plus – there’s nothing to install, nothing to update and no incompatibility issues with different versions of OS X or Windows. Using any browser-based software always has some security risks but stock trading sites such as eToro are generally watertight because of the financial sensitive data they’re dealing with. You’ve got little to worry about security wise from using eToro in a browser although if you want to use an app, you can use the eToro mobile app for iPad, iPhone and Android.
One slightly curious thing we found about eToro is that nowhere on the website does it show you how to sign-up for a demo account. Almost all trading platforms offer a demo or paper trading account so that you can practice with pretend or fake currency before taking the plunge. However, it’s actually very easy to sign-up for an eToro demo. You simply sign-up for an eToro account and then switch eToro from “Real” to “Virtual” currency in the dashboard.
To sign-up for an eToro account, go to the eToro home page and fill in the sign-up form with your name, create a username, create a password and enter your telephone number. Note that when you create your username, you don’t have to use your real name. However, if you plan on trying to become a top trader yourself, it may be wise to as it’s more likely to ensure that other traders trust and copy you. If other traders copy you, you also earn a share of their profits in what eToro calls the Popular Investor program. Your phone number is used to verify your account if you intend to trade for real. If you just want to use the demo account for now, you don’t need to verify your account but you still need to enter a phone number anyway.
As soon as you signup, you’re taken straight into the main eToro dashboard. You will immediately be prompted to “complete your profile” but you can dismiss this as it’s only necessary if you’re planning to start trading cash for real straight away. If you’re just going to try a demo account first, you can dismiss it. To activate the demo account, you simply go to the Menu on the left and change “Real” to “Virtual”.
You’ll then be prompted to confirm that you want to switch to a Virtual Portfolio:
If you do intend to take the plunge straight away (which we don’t recommend before at least trying the demo) and trade for real, you will need to fill in a profile and prove your identity via a national ID card or passport. This is because eToro is regulated by financial service authorities in the country that your trading from and just like a bank that deals with people’s money, it has to adhere to certain rules and regulations. This is good in terms of peace of mind that eToro is a reputable financial organization but it does add the extra hassle of needing to scan and send in some form of ID. Once sent and verified, your ID should be verified pretty quickly but it’s important to provide the correct information. It’s important you provide the right documents as any delay will result in a delay on any payouts you want to take from eToro. The failure to provide the right information, especially regarding addresses, has led to some people claiming “eToro is a scam” because eToro will not payout until all information has been verified. You can still trade while awaiting verification though but if your verification fails for any reason, you won’t be able to withdraw any profit you’ve made.
Information required in the profile includes your address (which is not displayed publicly), trading experience, attitude towards risk, financial status and finally, phone verification via SMS or call.
You can transfer money into your eToro account via several different methods including wire transfer, credit card, PayPal, Skrill, Neteller, WebMoney and MoneyBookers.
How to choose the best eToro traders to copy
Once you’ve activated the eToro demo, you’ll magically see $100,000 of currency appear in your Virtual Equity in the bottom right corner of your screen. You can do whatever you want with this and not lose a penny of real money which is where the fun really starts.
For most people who have opened an eToro account, the CopyTrader system is the biggest attraction and starting point. Just copy the top traders and watch the dollars roll in right? Like anything that sounds too good to be true, it’s not quite that simple. There are some serious pitfalls and things to be aware of before you trust another trader. The main thing is to be very careful which traders you choose to copy. Here we show you how to systematically avoid these pitfalls, so that you’ve got a much greater chance of making consistent gains with eToro. We also highlight a few essential identification requirements that are necessary before you can even start trading on eToro.
Here’s how to start copying the best traders on eToro in little more than few clicks:
- Go to the left hand menu and select Copy People:
You’ll now see profiles of hundreds of successful traders on eToro. The criteria you choose for the traders you choose to copy is the most crucial aspect of making money on eToro. If you get this wrong, you’ll end up losing far more than you gain. If you get it right, you’ll have a much bigger chance of making some serious money. Don’t just choose the traders that eToro recommends or highlights on in the main window. The apparent massive gains that accompany their profile pictures don’t always tell the full story. You’re looking for stable, regularly active traders that have a track record of making steady returns for at least 12 months. Traders that have made spectacular gains of more than 50% in the last 7 days may be using high risk trading strategies that are not viable long-term.
- To narrow it down to the kind of reliable, steady traders that are worth copying, click on the Filter button in the Menu Bar across the middle.
There are several different parameters and settings you can configure here. You don’t have to understand each one of these and you can just copy the settings that we’ve used below. Most of them are self-explanatory relating to how active the traders are.
You’ll notice that under “Status” some investors are labelled as “Verified”. This simply means that they are using their real name and photo in their eToro profile. Although this is meant to give you more confidence that they are trustworthy investors to copy, it really isn’t essential. There are some good traders who prefer not to use their real name or photos who still make good money. The important thing you should be looking for is their performance, rather than theur identity.
The cool thing about CopyTrader is that if you choose who to copy wisely and start making serious money, you will also be recognized as a Popular Investor and attract other users to copy you. As a result, you will earn a commission on any profits they make which compounds any profit you’ve made by copying others yourself. The cut you get depends on how many people follow you but a top trader can expect to get 2% annually of any funds that others copy them with. Some top traders manage more than $300,000 of other people’s money – so 2% is not to be sniffed at.
Once your money is invested, you’ll immediately see your money working for you in real-time. The most interesting view is the Portfolio view which shows how your money is performing in real-time. This gives a clear overview of which of your CopyTraders and investments are performing the best.
What are CopyFunds?
CopyFunds are a new feature of eToro that bring the Copy Trader concept with Mutual Funds investing. Mutual Funds are a collection of stocks that spread the risk of investment. So for example, the BigTech CopyFund includes investments in Microsoft, Google, Apple etc. If one company performs badly but others perform better than it balances out the risk of investing in just one company. The basket of funds is selected by the what eToro calls its “Investment Committee” which are basically fund managers.
eToro also provides alternative ways of investing in funds such as via the Trending R7 fund where eToro automatically selects the most copied traders on a monthly basis and aggregates them into one fund.
This is quite an exciting development in eToro as mutual funds are generally one of the most reliable investments you can make over the long-term. Harnessing the copy trading power of eToro with the earning potential of mutual funds is therefore potentially highly profitable indeed. In our tests, we found that CopyFunds were extremely profitable compared to copying individual traders but they were also more volatile. Like most mutual funds, CopyFunds are a meant to be a long-term investment that you leave alone over time to grow and you will notice a lot of volatility on a daily basis. As you can see from the performance of the BigTech fund in 2017, the performance was up 20%.
Note however that the minimum investment in a CopyFund is $5000 so if you don’t have the kind of capital, you can’t invest in one.
What’s the downside?
eToro is generally an excellent starting point for anyone interested in getting into stock trading. However, it’s definitely not for everyone. One of the biggest and most obvious problems is that it’s not available in the US yet and for users based in the USA, eToro is therefore not an option.
For experienced traders, eToro will also feel quite basic and limited, especially when it comes to technical analysis. There are no advanced services such as DMA, STP, ECN or VPS for example. For more detailed technical analysis of stocks, you’ll definitely need some third-party technical analysis software to help you drill-down data.
If you actively monitor the CopyTrader and CopyFund system however and use it cautiously, eToro is a far better idea than jumping into the stock market for the first time and trying to trade on your own.
Don’t Trade With More Than You Can Afford To Lose
Finally, it should go without saying that you should never invest more in eToro than you can afford to lose. Financial markets can be very volatile turning suddenly or unexpectedly and even the best traders lose money. You need a strong stomach to ride out the peaks and troughs of trading and you can even end up losing everything you invested if the market turns on you. One way you can protect yourself from this is by using stop-outs so that your trades are stopped once the market falls below a certain value. Another is to approach trading, like all investments, with a long term view. Traders rarely make big gains over the short haul but are rewarded for persevering over the long term.
However, the best advice of all is to only risk capital than you can afford to lose. We would never recommend using eToro as your main source of income. If you invest only what you can afford to lose and see eToro as a bit of fun, you can’t go too far wrong.
- Automated CopyTrader system requires no trading knowledge
- Leveraged trading allows you to trade with more than you have
- Free Demo Account With $100,000
- Relatively high spread costs compared to other platforms
- Not possible to customize trading interface
- Few stock market analysis tools