eToro is a leader in online trading, with 31.4 million registered users spanning 140 countries worldwide. But how does a popular trading company make its money?
Below we’ll cover trading revenue, interest income, and user fees to help eToro bring in enough yearly revenue to earn them a top spot as one of the most used trading platforms to date.
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How Does eToro Make Money ?
eToro generates its income predominantly from trading, contributing to approximately 87% of its total revenue. The remaining income comes from interest income (7%), currency conversions and other sources (6%), and also from ancillary fees such as those related to withdrawals and currency conversions.
For starters, eToro relies heavily on continual growth. Its business model has earned the company over a decade of success after being founded by brothers Yoni and Ronen Assia in 2007.
Their mission was to make trading more accessible without relying on financial institutions.
To help users of all skill levels find success on the platform, the company:
- Simplified investment options
- Created a user-friendly interface
- Made automated investments such as copy trading and smart wallets available
- Offered some stocks and cryptocurrencies for as little as $10
This approach to trading has helped garner their success and appeal to traders around the world. As a result, its trading volume has gone up to 1.2 trillion in 2020.
So, how does eToro generate revenue? Let’s take a closer look below at the different streams of revenue eToro relies on to remain a top contender in the market.
According to the data released by eToro, an estimated 87% of their revenue comes from trading. But what does that mean?
Trading revenue is determined by finding the difference between the buy and sell price of an individual asset, also known as the spread. The spread is then charged when a new trade is opened by a customer. This total is the markup price or spread gain, which determines the total cost for that particular trade.
Altogether, the difference between contract, crypto, and equity transactions produces the annual trading revenue.
The popular platform offers a variety of sought-after trading instruments, including stocks, commodities, cryptocurrencies, and other currency options. However, equities and commodities are the two instruments that make up roughly 75% of its yearly revenue.
Interest income is the second largest contributor to the revenue stream at eToro, but only accounts for 7% of the total revenue. This is also referred to as an overnight fee or rollover fee.
The interest or fee is only charged to users who trade CFDs and leave their positions open overnight. Interest income comes from margined positions that would otherwise close at the end of the day when the market closes.
These positions incur small fees, which are sometimes only a few cents per night, according to their value. Due to how margined positions are set up, these fees act as an interest to cover the cost of holding the position overnight.
Interest is tacked onto CFDs because of their use of leverage. This means users borrow funds from a broker to increase their trading position beyond what would be possible with only their cash balance.
An overnight position can lead to major wins (or losses) with an extra advantage. Therefore, users are charged a small fee for the potential upper hand.
Currency Conversion and Other Income
Currency conversion and other income only account for 6% of eToro’s revenue. Still, many of these fees are guaranteed because they are included in the user agreement clients accept when they create an account on the platform.
This revenue is comprised primarily of customer fees, including:
- Conversion fees: Users are charged when trading in a currency other than the U.S. dollar. This also affects deposits and withdrawals.
- Withdrawal fees:All withdrawals come with a fixed $5 fee.
- Inactivity fees:Users are charged a $10 monthly fee every month after their account passes 12 months of inactivity.
The revenue eToro generates from currency conversion and other small fees may not seem like a lot, but the earnings add up when millions of users pay them.
eToro’s success allows users to enjoy commission-free trading of real stocks. The consistent revenue streams produced through trading, interest, and other income allow users to enjoy this perk. As a result, eToro doesn’t make money from purchasing and selling stocks.
On the other hand, commission-free trading benefits this multi-asset investment company by acting as a free advertisement for its services. Many brokers, including eToro, appeal to potential clients on the fence about signing up by offering commission-free trading.
Since users don’t have to pay commission fees when purchasing real assets, they are more willing to spend money on additional services that do have a commission. This includes CFDs, Copy Trading, Portfolios, and more, often with additional management fees.
So although eToro doesn’t make much revenue from its stocks and other commission-free assets, its trading revenue makes up for it and allows them to provide this service to its loyal clients.
How Much Does eToro Earn Per Client?
According to the most recent reports from 2021, eToro makes an estimated $827 per client.
At the end of March 2023, eToro boasted 31.4 million registered users, which includes every user who has opened and retained an account on the platform. This is an increase from the 28.5 million users registered on the platform at the end of March 2022, with 2.6 million users making at least one deposit with their account.
The increase in users means the company could be potentially making more per client on average.
A Look at eToro’s Revenue
eToro’s revenue has experienced some major highs and lows over the past few years.
In 2021, eToro reported $1.234 billion in revenue, the most the company has made in a single year. But despite the 105% increase in revenue from 2020, the company also reported a major loss of $265.7 million. This amount is equal to a 420.5% loss from 2020.
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eToro is recovering from losses that were necessary to help expand the company. Such expansions included their U.S. investment offering of stocks and EFTs, in addition to an expansion of eToro Money across the U.K. and EU.
They also acquired Gatsby, the social investment platform that appealed to younger traders, for $50 million in a cash and common stock deal and the portfolio management platform Bullsheet, which allows users to easily diversify their portfolios.
Despite the losses and new investments, eToro expects to boost its annual revenue by 30% by the end of 2023. The company’s plan to continue expanding globally and prioritizing its performance in the U.S. without interference from Silicone Valley’s bank crisis may help them achieve its goals.
How Much Is eToro Worth?
eToro’s current valuation is recorded at $8.8 billion for 2020, which is a noticeable decline from $10 billion in 2021, as a result of a delay to its IPO. However, the next round of funding leaves the company looking at a valuation of $6 billion.
eToro publicly called off its plans to merge with SPAC, a merger that had a valuation of $10.3 billion, due to the market climate and issues that arose during the regulatory process. Instead, the company raised $250 million at a $3.5 billion valuation.
Terminating their awaited merger with SPAC led to less funding than expected but was still an increase from the company’s valuation of $2.5 million the in 2020.
eToro was said to be increasing their funding with the hopes of raising $800 million to $1 billion with a value of $5-6 but settled for the $250 million, which was the same amount they planned to receive from PIPE investments as part of their deal with SPAC.
Although the company accepted a lower funding amount at a reduced value, this bargain comes as no shock as eToro recovers from a 49% drop in its valuation from 2021. However, the setback is primarily related to the decrease in activity throughout the crypto market that affected competing platforms as well.
The Bottom Line
eToro makes money from trading, interest, and other revenue streams that continue to keep it afloat after 16 years of operation. The company experienced some financial challenges as a result of a steep decline in crypto commissions. However, it is enjoying a slight revenue growth that started in 2020.
Despite some of the financial setbacks over the last few years, the founders remain positive. Assia publicly stated that eToro has seen many of its clients buying and holding more crypto at the end of 2022. Moreover, it has seen an improvement in commissions as a result of increased engagement and trading activity since the beginning of 2023.
All in all, eToro continues to make enough money to experience gradual growth through its trading revenue, interest income, currency conversion, and other common fees users encounter by using the platform.