Social Trading That's *REALLY* Worth The Time & Money?
eToro is a "social" trading platform, designed by a UK-based company to provide traders with the ability to "copy" others using their innovative system...
Founded in 2006, it has now attracted over 4.5 million users, with many more signing up due to its recent support of "crypto" trading (using CFD's). The company has registered offices in the UK, Cyprus and the US. The US company is dormant and is registered with the National Futures Association (NFA).
The most important thing to understand about eToro is that it's aimed at the armies of "home" / "day" traders who may not have, or need, the high-level technical savvy provided by a number of "professional" brokers (such as IG) - the system is designed more around helping people accomodate the trading landscape & identify strategies they may wish to use in their own portfolios.
We've found the most effective way to get the most out of the system is to look at it more as an educational experience rather than a hardcore broker.
It lacks a number of features which many higher-level professionals may require, such as having running news stream access, custom identification of a number of commodities and the ability to make high-spread investments. It's also geared towards people with less trading experience, often using CFD's in order to facilitate margin-based trades.
Whilst the service works extremely well, it does have its deficiencies - especially for more high-level investors. To this end, it's important to understand the core offering of eToro, and how it's able to provide users with an effective (and profitable) experience, regardless of their trading background.
What is eToro?
Founded in 2006
The company was founded in 2006 as "RetailFX"in Tel Aviv, by brothers Yoni Assia and Ronen Assia together with David Ring. After releasing their "OpenBook" feature, the company pivoted to offer "social" retail trading through the Internet.
4.5m+ Members From 170 Countries
After its shift in 2010, eToro grew rapidly to over 4.5m members in 170 countries. All of these traders have the capacity to view the "public" trading strategies of members of the service.
US/CA Users NOT Allowed
This is nothing to do with politics; the US & Canada do not support CFD's (which is a MAJOR component of eToro's offering. As such, it's easier just to exclude users from those geographic areas.
FCA Regulated (UK)
If the company goes out of business, the FSCS will pay out any UK member of the service the equivalent of what they're owed by the company (up to £50,000 limit).
Cypriot Investors Compensation Fund (EU)
If in the EU, the Cyrpiot office covers traders who may experience loss due to the system. To this end, if the service becomes defunct and owes citizens of EU member-states money, the Cryptio Investors Compensation fund will pay out up to 20,000E.
Mostly CFD's (Contracts for Difference)
Something important to consider is the platform achieves margin by using CFD's. Whilst nothing wrong with this, it may not be effective for beginner/novice traders to start using leverage in their trading strategies.
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As mentioned, eToro is one of the first social trading platforms to be created online.
It's an Internet-based platform which has an easy-to-use interface, and basically focuses its efforts on social integration within its platform.
The system was created in 2006 to provide users with the ability to buy and sell different commodities / assets through a single broker. The most important aspect to the system (to the detriment of other functionality) was to give higher-level traders the opportunity to earn more money by sharing their porfolios and shares publicly with others.
We've found the most effective part of the system is its simple interface, allowing users to make quick and long-term decisions based off the way in which they're able to see all the information at their fingertips.
If you're looking at using a broker, eToro is certainly a good start - but not as sophisticated as many of the "higher level" ones.
Who Created It?
eToro was founded by brothers Yoni Assia and Ronen Assia with a partner, David Ring.
The trio have a wealth of experience in both the technology and finance worlds,with Ronen boasting 20 years alone. It's evident that the brothers are the "visionary" entrepreneurs behind the platform, and Ring was mostly the provider of software engineering prowess.
The following explains their histories:
Yoni Assia (CEO/Co-Founder)
Fascinated with finance & computer science from an early age, Yoni focused on a number of projects before creating what would become eToro (RetailFX). Has steered the company from inception through to current standing, maintaining a core focus on the educational/introductory aspect of the system over pure functionality (as are available from other brokers).
Holds a Bsc in Computer Science & Management from the Open University of Israel and an Msc in Computer Science from IDC Herzliya.
Ronen Assia (Chief Product Officer/Co-Founder)
Like his brother, had a penchant for technology and design since an early age. Spent the next 20 years creating simple, powerful & intuitively interactive products that seamlessly perform across multiple devices and platforms.
Prior to co-founding eToro in 2007, he designed products ranging from medical devices and household appliances, alongside several desktop & mobile software applications.
Today, oversees product and engineering departments for eToro. Holds a BA in Industrial Design from Bezalel Academy of Art and Design in Jerusalem, and an MA in Product Design from the Royal College of Art in London.
20 years+ experience with software development & management. Helped create eToro's original investment platform (formerly known as RetailFX) and continued to build out underlying functionality of the product.
Holds an M.Sc. in computer sciences from IDC Israel, an MBA in finance from Manchester Business School UK.
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Obviously, as the company has expanded it has taken on more staff to accommodate its burgeoning demand. The above founders should indicate the prowess of the company, its platform and propensity to deliver a steady return.
All brokers work in a similar way - they act like the "middleman" - allowing users to purchase assets or commodities by way of engaging with their interface.
The online trading platforms of today (of which eToro is one) is essentially what a "stock broker" would have done 40 or 50 years ago. They provide access to the wider market, but also provide other functionality to help users profit in different ways.
One of the most important aspects of brokers is that of leverage. Leverage is essentially debt; allowing users to trade derivatives of commodities in return for a "leveraged" position. The level of debt provided by brokers is called margin.
eToro provides margin-based trading through the use of CFD's. These are Contracts for Difference, and basically work by allowing users to buy contracts with the broker to settle a particular price of an asset. These CFD's mean that if you're using the service to buy the likes of "crypto" currencies, you'll end up not owning any at the end of it all.
The following features allow eToro to operate:
On top of the Forex/Crypto/Commodities offering, the system is able to provide share brokerage.
Forex is traded on the platform, with all the major currency pairs offered.
As with other aspects of the system, the "social" intelligence aspect plays a huge role and allows users to pinpoint exactly where they want to make their entries/exits etc. The broker offers mostly the same functionality as others in the market.
The "crypto" offering from the company started to grow in 2016, and reached its high-point in 2017. The system famously uses CFD's to fund "crypto" purchases, which means that no underlying assets are bought (and that you can "short" the various systems, too).
Because the system does not require ownership of the various coins, all are offered through it. You're also able to use the various "copyfunds" to examine how other people may be making money from the system, too.
The company introduced mobile apps in 2010 so its user-base could trade on the go. These have been downloaded well over 1m times on Android and iOS.
In the end, a broker is only as effective as the person using it.
We've looked at several brokers, and eToro is the only one which is focused on "social" trading - with its underlying platform committed almost solely to the ability for someone to "copy" the strategies of others.
eToro is both effective, reliable and relatively inexpensive. Its user-base is diverse, and actually has a number of quite successful traders on its books. Whilst this doesn't really indicate anything about the company itself, it does provide an insight into their trading strategy and trust in the eToro.
The "CopyFunds" and "Copy People" features offer a unique insight into how people are actually trading the markets, their long/short strategies, and whether they're actually making any progress with their investments.
In a word, we'd label eToro as "beginner". This is not a slight against the company, its principles or its users (profit is profit regardless of where it comes from) - but for high-volume traders, who may need to use use high spreads, it's not that effective.
Ultimately, it comes down to how effectively it helps you achieve similar success of the various "winner" traders on the system whilst not sacrificing any of the potential profits to do it. And in our experience, we've found this works extremely well.
The main issue we've found for the system is that if you split its functionality between "broker" and "trading partner", you're able to quantify its value much more clearly. This not only allows you to get the most out of the system.
Some of the downsides of the service include a slow customer support, people unable to use some of the features of the platform and a general lack of information regarding the underlying methodology of the system.
Having said this, the fact it has over 4.5 million users and is entirely regulated by the UK financial authority, makes it a very compelling service. We would recommend it for users who wish to gain experience in the "trading" world, as well as those who may only have a couple of years' experience with the market (as they can pull strategies from the bigger users on the system).
We give the service 4 / 5 stars (especially for beginners/novices). For everyone else, each decade of experience you have should remove a star.