Are you just starting out in trading and hesitating to sign up with eToro? Here's everything you need to know about this platform, which has the particularity of offering "social trading".
What is eToro?
eToro is an online trading platform: individuals can sign up to invest in different financial products. The platform acts as an intermediary between them and the various financial centers, executing their orders with them.
The platform was founded in 2009 in Israel. It operates in more than one hundred countries. Its European headquarters is based in Cyprus. It practices "social trading", which means that users have the opportunity to copy the movements of "influential" traders to try to replicate their strategy.
How does eToro work?
The platform can be accessed from any device with an internet connection and has an app available for iPhone and Android devices. To start trading, all you have to do is create an account on the site. Before investing any money, the user has to complete their identity, answer questions to assess their trading knowledge, and read a number of documents regarding eToro's educational tools and general risk information.
One then has to make a deposit into the eToro account, via a credit card payment, equivalent to at least $200 for an initial deposit and $50 for a new deposit, in order to have enough capital on the site to trade. Unlike traditional trading players, eToro doesn't operate with a tax wrapper (a bank account specifically designed for investment): the money invested and earned is temporarily hosted by partner banks on behalf of eToro, and the investor must then transfer it to their own bank account in order to use it.
Once the registration is complete, the various marketplaces covered by eToro are accessible, and the user can invest in them as he sees fit: all he has to do is select the asset he's interested in and click on "Trade".
eToro offers a copy trading feature: its technology allows to automatically copy the strategy of other traders in real time, for those who wish to do so. The investor then sets a certain amount of money that he wants to allocate to copy trading, and his investment will automatically follow the movements of the trader(s) he is following. The site advises not to invest more than 40% of its capital to follow a single trader, but the minimum is 200 euros.
It is possible to consult the risk score, the history and the portfolio diversity of all the traders. This can allow, within the framework of a copy trading strategy, to select the most serious traders with the least risky behavior. The platform also offers a social trading feature, which is the ability to chat with other investors.
What are the fees on eToro?
As with all trading platforms, there is a fee structure that varies depending on the assets the user invests in, their quantity, the duration of the investment...On eToro, trades are mainly made in dollars. This means that the fees are applied in dollars, and that for people who fund their accounts in euros, conversion fees will be added.
The broker charges 0 euros for buying and selling shares on long positions without leverage, and no commission. On the other hand, for short positions, fees apply. For contracts for difference (CFDs) on Euronext as well as internationally, a fee of 0.09% is charged on all positions (buying and selling), as well as a rollover fee on evenings and weekends for buying shares. For ETFs, the fees are 0.09% per game, plus fees for short leveraged positions. Finally, fees ranging from 0.75% to 5% are charged on investments in cryptocurrencies.
The site charges a custodial fee for stocks: 22 cents per day when buying and 12 cents when selling, applied to the amount borrowed. A $10 fee is also applied when account inactivity reaches twelve months, provided there are funds left in the available balance. However, eToro will not close any open positions to recover this inactivity fee. To stop the inactivity fee, all you need to do is perform any kind of activity, such as simply logging into your account.
The withdrawal fee is $5. However, there are no account opening, management or closing fees, and access to real-time quotes is free for stocks and ETFs. A conversion fee applies to any deposit that is not made in US dollars. Withdrawal fees are waived and conversion fees are reduced for clients with higher equity on the platform.
What financial products are available?
The platform allows investing in assets such as stocks, currencies, commodities, indices, but also crypto-assets. It also provides access to CFDs (contracts for difference) backed by various assets. The platform also offers a Copy Portfolio, through which investors can access a portfolio of stocks from a predefined sector, and invest in the whole portfolio, without selecting assets one by one, in order to diversify their portfolio.
Is eToro a serious site?
eToro is a platform that benefits from several guarantees: it is regulated by the Cyprus Securities & Exchange Commission (CySEC), the financial markets authority of Cyprus, and by the FCA, the Financial Conduct Authority, the British financial markets authority. The amounts deposited on the platform are also guaranteed up to 20,000 euros. Users are therefore guaranteed to get back the funds deposited on the site up to the limit of 20,000 euros in case of eToro's failure. The trading platform also provides all its customers with free insurance from Lloyd's of London, which covers losses incurred in case of insolvency up to a limit of one million euros, against payment of a deductible.
However, the fact that the site is serious does not prevent the risk of losing money from being very high. The broker states on its website that "67% of retail investor accounts lose money when trading CFDs with this provider". However, eToro takes a number of steps to limit its customers' risk. When signing up, the user is given a questionnaire to assess their trading skills. Depending on their answers, eToro may decide to limit some of its activities, including investing in the riskiest assets. The site also offers a number of educational resources, analyses and financial market guides to help traders. And traders can practice on a virtual account.
eToro and taxes
The money earned on the platform must be declared to the tax authorities when filing one's tax return. eToro states in its terms and conditions that the company does not collect or pay any taxes on the income earned or lost by the investors: the latter must declare all these elements to the tax authorities themselves. Investors should first total their gains and losses for the year to obtain the net balance. If the trading activity shows a net loss, it is possible to declare it. Indeed, if it cannot be deducted from the global income, it is possible to deduct it from the capital gains of the same nature for the following ten years.
Financial assets are subject to a 12.8% tax. However, it is possible to prefer the application of the progressive tax scale. To do so, you must make an express request. CSG, CRDS and social security contributions of 17.2% must be added.
As eToro does not offer a PEA-type securities account, it is not possible to benefit from the tax relief that this type of product entitles you to. The trader has to declare what he has won or lost, even if the money is still in the eToro account and has not been transferred to his bank account.
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