eToro is one of the leading social investing platforms out there today.
The company started off as a cryptocurrency platform and has evolved into a community where you can trade equities as well as copy other investors’ strategies.
Today, we’re going to be talking about whether or not eToro is a safe platform to use.
What Is eToro?
eToro is a social trading platform that allows users to trade stocks, cryptocurrencies, and forex as well as keep up with the investing strategies and patterns of other users.
The company is based in Tel-Aviv, Israel, and its CEO is Yoni Assia.
eToro was founded in 2007, but the groundwork for the social investing platform that eToro is today was really laid in the early 2010s.
The platform has over 25 million registered users in over 140 countries.
eToro lets you trade cryptocurrencies as well as use their very own crypto wallet.
Investors located outside the U.S. can trade CFDs, which means contracts for difference.
These are derivative contracts based on the difference in the current value of the security and its value at the time of contract expiration.
Stocks and ETFs are also available to customers in certain locations, and eToro expects to expand the reach of their equities offerings.
eToro also offers other special features such as a virtual portfolio and stock news and analysis.
One of the main features that makes eToro unique is the CopyTrader feature.
CopyTrader lets you duplicate the portfolio of another investor at the push of a button.
You can look up top traders that fit your style and then easily mimic their strategies.
These top traders get paid as part of eToro’s Popular Investor program in return for allowing users to copy their portfolios. Everybody wins!
How Does eToro Make Money?
eToro is a commission-free trading platform for stocks; you won’t pay any fees when you make an equity trade.
So if trading is free, how does eToro make money?
Firstly, eToro makes money on the spread.
When we refer to the “spread” when discussing stocks, we’re talking specifically about the bid-ask spread.
The bid-ask spread is the difference between the highest amount a buyer is willing to pay for a stock (the bid price) and the lowest amount a seller is willing to sell the stock for (the ask price).
When the bid price and ask price are different, the brokerage makes money by processing orders.
This is because they can simultaneously sell a stock for a higher price and buy it at a lower price.
The spread for stocks that trade at at least a decent volume is usually no more than a few cents, but this really adds up for brokerages when they’re processing millions of trades.
eToro also makes money by collecting fees, especially on cryptocurrency services.
For example, the company charges a 1% fee any time you buy or sell cryptocurrency on their platform.
If you’re using the eToro Money Wallet for your crypto, you’ll also pay a 0.1% conversion fee to convert one coin to another.
There’s also a 0.5% transfer fee (minimum of $1, maximum of $50) when you transfer funds from your eToro brokerage account to the Money wallet.
eToro also charges miscellaneous fees for certain optional services.
For example, if you decide to transfer your eToro account to another brokerage, you’ll pay a $75 ACATS fee.
You’ll also pay different fees for paper services, wire transfers, and other services.
These fees are typical among most brokerages and are easily avoidable depending on how you use the platform.
Is eToro Legit?
eToro has tens of millions of users and over a decade of experience under its belt.
But is eToro legit? Does the platform really do what it promises to do?
We’re happy to say that yes, eToro is legit.
The platform certainly provides the services it claims to provide.
You can trade stocks, ETFs, and cryptocurrency (with restrictions in certain states).
Equities trades are truly commission-free, and there aren’t any hidden trading fees.
eToro is transparent about the fees it does charge for crypto services and miscellaneous services, as they provide you with a full fee schedule.
Is eToro Safe?
So, is eToro safe?
Well, we think that eToro’s years of business in the investing world and millions of users speak for themselves.
But if that wasn’t enough, eToro is a member of both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
This means that eToro is heavily regulated by the government, just like many other big investing platforms.
FINRA is a nonprofit organization that oversees broker-dealers and individual stockbrokers.
It is not a part of the federal government, but it is overseen by the SEC.
FINRA licenses and makes rules for any entity that sells stocks/
The SEC is a government agency that serves to protect investors.
It has the power to enforce securities laws and bring suit against people who commit financial crimes.
They are the executive agency that fights against insider trading, pump-and-dump schemes, securities fraud, and the like.
eToro is also a member of the Securities Investor Protection Corporation (SIPC).
The SIPC is the nonprofit organization that takes care of investors who lose money due to their brokerage going out of business.
This means that your stocks and deposited cash are protected in the event that eToro goes out of business and you’re unable to liquidate the assets in your account.
Of course, the SIPC does not cover you if you simply lose money on a stock; it’s only if your brokerage can’t give you the money already in your account.
So to answer your question…
…yes, eToro is safe!
Keep in mind that cryptocurrencies are not insured.
Final Thoughts
As you can see, eToro is a safe, legit platform.
They provide legitimate services and charge honest fees.
If you’d like to read our full review of the eToro platform, you can click here.
