Honest Review of eToro: Is It Right for Global Index Fund Investors?

Choosing the right broker is a crucial step in your investment journey, in this review we will take a look at eToro through the lens of a low cost global index fund investor. eToro, a broker known for its social trading features and commission-free trades. We'll explore the pros and cons, fees, account setup process, and safety measures to help you decide if eToro aligns with your investment goals. Is it really as cheap as they claim?

What You’ll Learn:

  • 🟢 Pros and Cons of eToro

  • 💸 Fees and Pricing Structure

  • 📱 Ease of Use and Convenience

  • 🔒 Safety and Regulatory Protection

Table of Contents

Overall Assessment 3.0/5

eToro offers a user-friendly platform with unique social trading features and supports fractional shares, making it appealing for new investors. However, it has a complex fee structure with higher currency conversion and withdrawal fees, which can erode returns for passive investors focusing on low-cost strategies.

CriteriaRating
Fees and Commissions
Product Range
Platform Usability
Customer Service
Safety and Regulation
Account Setup and Minimums
Additional Features
Currency Support and Conversion Fees
Educational Resources
Wealthy Forever Rating

Quick Overview

FeatureAvailableDetails
Fractional Shares✅Invest in fractions of shares and ETFs
Fee LevelLowCheck detailed fee structure
Currency Conversion Fee0.5% - 1.5%Charged when depositing currencies outside your base currency. Or buying equities in a different currency. This is higher then other brokers.
Social Trading✅Copy trading feature to follow other investors
Inactivity Fee❌$10 monthly fee after 12 months of inactivity
CFD Trading✅CFDs are available (high risk). I recommend staying away from this.
Automated Savings Plan❌No automated investment plans available
Regulatory Safety✅Regulated by CySEC and FCA
Learn more about safety

Pros and Cons of eToro

  • ✅ Pros of eToro:

  • - Fractional Shares: eToro offers fractional shares, allowing you to invest in high-priced stocks and ETFs with smaller amounts of money.

  • - Social Trading: eToro’s CopyTrader feature lets you automatically copy the trades of experienced investors, which can be helpful for beginners.

  • - Commission-Free Trading: Zero commissions on stock (only for some customers deppending on where you are from) and ETF trades makes it cost competitive for a simple buy-and-hold strategies.

  • - GBP and EUR Accounts: With the introduction of GBP and EUR accounts, you can deposit, hold, and trade in your local currency, avoiding conversion fees when trading EUR or GBP assets.

  • - Regulatory Safety: Regulated by CySEC and FCA, offering standard investor protection up to €20,000.

  • ❌ Cons of eToro:

  • - Complex Fee Structure: Fees like spreads and currency conversions can be higher than they seem and lack full transparency.

  • - Inactivity Fee: A $10 monthly fee applies after 12 months of no login.

  • - Limited ETF Selection: The number of ETFs available is smaller compared to other brokers.

  • - No Automated Investment Plan: eToro lacks an automated savings plan, which can be a disadvantage for passive investors.

  • - High-Risk CFDs: CFDs are available but are risky and should probably be avoided at at all costs.

  • - Predatory marketing: They market themselves as low cost but have loads of different fees. If someone gives you something for free, you are the product.

  • - Not publicly traded: Most respected stock and fund brokers are publicly traded companies offering a lot of insights into their operations. eToro is not, its more of a black box.

  • - Withdrawal Fees: They have a fixed fee of 5 USD for every withdrawal you want to make. Which is not industry standard. Most brokers offer free withdrawals.

Fees: How to Understand and Avoid Hidden Costs

eToro promotes itself as a commission-free platform, but understanding where and when fees apply is crucial for managing your overall costs. Let's break down the key fees that may impact your trading experience:

  • Commission Fees: eToro does not charge commissions on stock and ETF trades. This can be appealing for new investors. However, be cautious of spread costs on other instruments.

  • Currency Conversion Fees: If you’re not using a GBP or EUR account, any deposits and withdrawals incur conversion fees of 0.5% to 1.5%, depending on the method used. For example, depositing funds in EUR but having USD as the base currency can lead to significant costs.

  • ETF Spread Fees: While eToro offers zero-commission trading on ETFs, you’ll still encounter market spreads. For example, if you invest $1,000 in the SPDR S&P 500 ETF, themarket spread might be $0.85 at purchase and $0.70when selling. Fortunately, eToro does not add its own spread on top for most ETFs.

  • Withdrawal Fee: A fixed fee of $5 is charged for every withdrawal, regardless of the method or amount.

  • Inactivity Fee: A 10/month fee applies if your account is inactive for over 12 months. Simply logging in will prevent this fee.

With the introduction of GBP/EUR accounts, it is now possible to avoid some of these conversion fees by keeping track of your currency exposure and using the new eToro Money account feature.

Convenience of eToro

eToro aims to make investing accessible, but how convenient is it for passive investors?

  • Social Trading: The platform allows you to follow and copy the trades of experienced investors, which can be a double-edged sword. While it offers learning opportunities, it may encourage short-term trading over long-term investing.

  • Fractional Shares: eToro supports fractional shares, enabling you to invest small amounts in high-priced stocks or ETFs.

  • Limited Automated Investing: eToro does not offer automated savings plans or recurring investments, which are beneficial for passive investors.

  • Mobile and Web Platforms: The user interface is intuitive and available on both mobile and web, making it convenient to manage your investments on the go.

  • Customer Support: eToro offers support via email and chat but lacks phone support.

eToro Money Accounts: How Currency Conversion Works

How does eToro handle currency conversions when trading with EUR or GBP accounts?

When using a EUR or GBP account, here's how the process works:

  • 1. When you open a trade with funds from your EUR account, your EUR is converted to USD (with no conversion fee), and the trade is executed from your USD balance.

  • 2. If the asset is USD-based, there are no additional conversions. However, if the asset is EUR-based, your funds will be converted back to EUR, again with no conversion fee, but exchange rate fluctuations can still impact the final trade value.

  • 3. If you cancel an order, the funds may remain in your USD balance rather than reverting back to your EUR account.

  • 4. This setup is only available for real stocks and cryptoassets—all other trades, such as CFDs, require USD funding.

This process allows for more seamless trading with minimal fees, but be mindful of exchange rates when trading EUR-based assets. But to be honest with you. It seems like a very convoluted process. If you are holding euros why would you want to convert them to USD to buy a stock that is priced in euros? It seems like a way for eToro to make more money from you.

Setting Up an Account with eToro

Getting started with eToro is straightforward. Here's what you need to know:

  • Account Opening Time: Account setup can be completed within a few hours, pending verification.

  • Verification Requirements: You'll need a valid ID and proof of address.

  • Minimum Deposit: The minimum deposit ranges from $50 to $500, depending on your country and deposit method.

  • Platforms: eToro offers both a web platform and a mobile app for iOS and Android.

  • User Experience: The interface is user-friendly but may feel cluttered due to the social trading features.

Is eToro Safe?

Safety is a paramount concern when choosing a broker. Here's how eToro measures up:

  • Regulation: eToro is regulated by the Cyprus Securities and Exchange Commission (CySEC) in the EU and by the Financial Conduct Authority (FCA) in the UK.

  • Investor Protection: Client funds are protected up to €20,000 under the Cypriot Investor Compensation Fund.

  • Securities Lending: eToro may engage in securities lending. Ensure you understand the terms before proceeding.

  • Regulatory Issues: eToro has faced regulatory actions in certain jurisdictions in the past. It's advisable to stay updated on any regulatory news concerning the platform.

While eToro is regulated and offers standard investor protections, it's important to be aware of the risks associated with trading complex instruments like CFDs.

Summary: Is eToro Right for You?

Overall, eToro might be a reasonable choice if your base currency is USD, or workable if it's GBP or EUR. However, for all other currencies, their currency exchange fees are simply too high, far exceeding the industry standard.

There are also aspects of eToro’s operations that raise questions about whether their incentives are fully aligned with their customers. For instance, payment for order flow (PFOF)practices, which could affect how your orders are executed. Moreover, even if you are trading assets listed in EUR, eToro often converts your funds to USD, which adds unnecessary complexity and fees.

Another example is their withdrawal fee. If you wanted to withdraw $1,000, you would be charged a $5 fee—essentially a 0.5% cost. This equates to two and a half years of holding fees for an ETF like the Xtrackers MSCI World ETF.

All in all, eToro could work fine if you stick to buying equities in the currency you want to invest in and use a buy-and-hold strategy. However, you need to be vigilant about navigating the various fees they throw your way. Their social trading feature can be useful for learning or gaining inspiration, but you can likely find similar value elsewhere.

Open account at eToro

Frequently Asked Questions

eToro charges no commission on ETF trades, for some countries not for stocks either. But you may face other fees like spreads, withdrawal fees ($5 per withdrawal), and inactivity fees ($10/month after 12 months of inactivity). Currency conversion fees apply if your base currency is not USD.

Varies. For Denmark, Finland, Netherlands, Norway, Portugal, Spain, Sweden, Australia and New Zealand 1 to 2$ per trade. For other countries, eToro charges no commission on stock trades. However, you may still face spreads and currency conversion fees.

Yes, eToro offers commission-free trading for ETFs, but you will still encounter market spreads. The platform may not have as wide a selection of ETFs as some other brokers.

No, you do not own the stock. eToro acts as an intermediary, holding the stock on your behalf. They will pay you dividends and handle corporate actions.

eToro is regulated by CySEC and FCA, providing investor protection up to €20,000. However, it has faced regulatory scrutiny in some regions. eToro also engages in payment for order flow (PFOF), which could impact the execution quality of your trades.

Yes, eToro supports fractional shares, allowing you to invest small amounts in high-priced stocks and ETFs. This feature is ideal for investors looking to diversify with limited capital.

While eToro markets itself as commission-free, there are several fees you should be aware of. These include currency conversion fees (0.5% to 1.5%), withdrawal fees ($5), and spreads on trades. The fee structure can be complex and not fully transparent.

You can earn interest on cash balances in your eToro Money account, but you must manually activate this option. Otherwise, eToro keeps the interest on your cash balances. This feature is available for GBP and EUR accounts.

eToro does not offer an automated savings plan or recurring investment feature. However, you can manually invest in stocks, ETFs, and other assets through the platform.

CopyTrader allows you to replicate the investment strategies of other traders on eToro. You can automatically copy their trades in real time, which can be beneficial for beginners looking to learn from more experienced investors.

When you open a position using funds from your EUR account, the money is converted to USD for trade execution. If the asset is EUR-based, it will be converted back to EUR with no conversion fee, but exchange rate fluctuations may affect the final cost or proceeds of the trade.

Yes, eToro charges a currency conversion fee ranging from 0.5% to 1.5%, depending on the payment method and your base currency. However, if you're using a GBP or EUR account, you can avoid conversion fees for certain trades.

Disclaimer: The information provided on this website is for educational and informational purposes only and does not constitute financial advice. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. We recommend consulting with a qualified financial advisor before making any investment decisions. Wealthy Forever is not responsible for any investment decisions made based on the information provided here.

We encourage you to conduct your own research and consider your personal financial situation when making investment decisions.