eToro specializes in social trading, multi-asset brokerage, online investing, and Bitcoin exchange. EToro has a similarly diverse revenue generation model with a diverse product range through fees applied to CFD and non-CFD trades. Overnight and weekend interest fee. Withdrawal fees and conversion fees.
Table of Contents
Origin Story
eToro is an Israeli financial services company specializing in social trading, multi-asset brokerage, online investing, and Bitcoin exchange.
The company was founded in 2007 by brothers Yoni and Ronen Assia and David Ring.
With a background in computer science, Yoni recognized that existing trading platforms were difficult and expensive to use.
Ultimately, this made them inaccessible to the average consumer.
With brother Ronen’s background in productmanagement and software engineering, the trio secured $1.7 million from private investors to develop eToro.
The platform was released late in 2007 with a sole focus on forex trading and making it easier to understand.
In 2013, the company experienced rapid growth after allowing traders to publish and share the details of their trades with others.
The following year, eToro users could trade Bitcoin on one of the first such platforms to legitimize cryptocurrency trading.
With a diverse product range, eToro has a similarly diverse revenue generation model.
Let’s look at some of the main streams below.
Spread
In investing, the spread is simply the difference between the bid (sell) and ask (buy) price and applies whenever an asset is bought or sold.
In the case of eToro, the asset may be a stock, commodity, ETF, index, or cryptocurrency such as Bitcoin.
When an eToro trader opens a buy or sell position, the company collects a fee automatically. This fee applies to CFD and non-CFD trades.
Overnight and weekend fees
Overnight and weekend fees are a type of interest fee. The company collects these fees when it holds lent assets overnight or over the weekend.
The exact fee depends on the position being held, the type of asset traded, and overall trading volume.
eToro also adds the London Inter-Bank Offered Rate (LIBOR) to its list of charges.
This specific fee is what banks charge each other to borrow or hold funds over the aforementioned periods.
Withdrawal and conversion fees
A $5 withdrawal fee is charged when a user wants to transfer money from their eToro account to a banking account.
A conversion fee is also charged for any withdrawal that does not involve the USD.
Conversion fees are based on percentage in point (PIP) arithmetic – or the difference between two percentages.
This difference depends on the two currencies involved in the conversion.
Inactivity fees
For users who do not log into their accounts for a period of one year, eToro also charges an inactivity fee of $10.
This fee is drawn down from the account balance and is not funded by closing any of the user’s open positions.
Key takeaways
eToro is an Israeli financial services company with a focus on traditional and cryptocurrency investing. eToro was founded out of a need to make online trading platforms more accessible and easy to understand.
eToro makes most of its money by collecting a commission on the spread between the bid and ask price. This applies to any position – regardless of type – that is opened on the platform.
eToro also charges overnight and weekend fees whenever it holds loaned assets overnight or over the weekend. It also collects withdrawal fees, currency conversion fees, and account inactivity fees.
Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.
Starting as a pay-later solution integrated into merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interest earned from the consumer loans when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrow transaction fees, various value-added ancillary services, and its Credit Pay Instalment fees.
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.
Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is “to create an open financial system for the world” by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.
Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).
Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.
E-Trade is a trading platform allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts; acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and other fees and service charges.
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.
Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financialmodel to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.
NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earns interests from customer cash and stocks, and rebates from market makers and trading venues.
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.
Stash is a FinTech platform offering a suite of financial tools for young investors, personalized investment advice, and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on members’ accounts.
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cashmanagement products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.
Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
