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How Does eToro Make Money? eToro Business Model In A Nutshell

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.

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 for the average consumer.

With brother Ronen’s background in product management 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.

In March 2021, eToro officially passed 20 million users globally.

eToro revenue generation

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 the closing of 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.

Read Also: How Does Coinbase Make Money, How Does Robinhood Make Money, How Does Acorns Make Money, How Does Betterment Make Money, How Does Wealthfront Make Money.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"