eToro is one of the most popular online brokers today. Besides being able to trade manually like any other broker ( forex, stocks, indices, cryptocurrencies, commodities, ETFs,…) it also offers the possibility to search, follow and copy the trades of other experienced traders. You can take advantage of the knowledge and winning strategies of other traders to make profits. This is called“social trading” and eToro offers its customers the most comprehensive social trading network available today.
In addition, eToro is a CySEC (Cyprus Securities and Exchange Commission) regulated broker with license number 109/10 and also regulated by the FCA (Financial Conduct Authority of the United Kingdom) with license number FRN 583263. You can open an account and start trading with an initial deposit of as little as $200.
In this article we will focus on the fees that eToro charges for its services and explain what each fee consists of:
What are eToro’s commissions and fees?
At eToro, as with most CFD brokers (What are CFDs?), there are no brokerage fees, custody fees, dividend collection fees, or any other similar fees because you trade on the price of the underlying financial instruments rather than physically purchasing them.
eToro has these types of commissions which we will explain one by one:
- Overnight rate.
- Currency conversion.
- Withdrawal fee.
- Inactivity fee.
– Spreads at eToro
Spreads are a type of commission charged by any CFD broker for opening a trade. This commission is applied to each individual financial instrument by the difference between the bid price and the ask price:
If we look at the image above, corresponding to eToro’s trading platform, we will see that for each instrument there are two prices: a buy price and a sell price.
The eToro broker works with two quotes. One quote to buy the asset (usually called “ask”) and one quote to sell the asset (usually called “bid”).
Remember that when trading CFDs, if you believe that the price of the financial instrument is going to rise, you can choose to open a buy trade and then close it with a sell trade (this is called going long). On the other hand, if you think that the price is going to go down, you can open a sell trade and close it later with a buy trade (this is called “going short”). In this way you have the possibility of making profits in both rising and falling markets.
For example, if we believe that the price of the EUR/USD currency pair is going to rise, we would start by buying at the ask price, which will be a few pips more expensive than the bid price at which we will later sell. On the other hand, if we believe that the price of the EUR/USD is going to go down, we would first make a sale at the “bid” price and close it with a purchase at the “ask” price.
The difference between both prices is called the spread and it is the cost that we will have for opening a trade as a consequence of the commission applied by the broker through this differential.
Normally most online brokers charge this spread at the opening of the trade. For this reason, the position starts with a loss. However, eToro works differently and deducts this spread when you close the trade, not when you open it.
For example the EURUSD currency pair is trading at 1.2176 as the bid (sell) price. At the same time it shows the ask price, which at the time the image was taken was 1.2179. In this case the spread is 3 pips. This is the cost we will have for trading the EUR/USD and the amount of the commission will be higher the bigger the size of the trade.
Please note that spreads apply to each financial instrument and vary from one instrument to another. For example, in instruments with more liquidity (in which there are more participants in the market such as the EUR/USD pair or in general all currency crosses against the euro) the spread will be lower and on the other hand, in instruments with less liquidity the spreads will be higher and therefore the commission we must bear will be higher.
You can see a list of eToro instruments and their spreads on the eToro website:
(*) Risk warning: 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford the high risk of losing your money.
– eToro’s Overnight Fee
The Swap is also called a “Roll over” or an overnight fee. Actually all three terms are correct.
Roll over because it is a rollover. Swap because it is actually an interest rate swap. Finally, some people also refer to it as an overnight fee, because it is a fee for leaving a transaction open overnight (also known as “overnight”).
In other words, a refinancing takes place, based on an interest rate swap, and constitutes a premium each day. Let us explain it better:
If we open a trading operation with a Forex or CFD broker, it will normally be a leveraged position since we can invest with an amount several times higher than the amount we deposit as collateral when opening the operation.
This difference of money would actually be lent to us by the broker. As it is a loan, it is subject to interest if the position is kept open until the following day. The broker lends us the money, but only for that trading day, when this day ends the accounts must be settled.
Trading operations are rolled over each day so that they do not have to be closed and the loan that constitutes the leverage is paid off. As a result, the fee (the rollover interest) will be applied when the position is kept open overnight (overnight).
The overnight fee is actually charged at 17:00 EST (US East Coast time, or New York time), as this is the time taken as the end of one trading day and the beginning of the next.
Remember that there are markets, such as Forex, which do not close (except on weekends). So when this time arrives, the trading day is considered to be over. It is another value date and the outstanding accounts must be settled or refinanced.
For example, this time corresponds to 23:00 hours in Spanish peninsular time. Therefore, if we open a trade at 22:59 and close it at 23:01 it is considered an “overnight” trade and the overnight rate will be applied. This is the same for each day that the position remains open. Except for the day when the positions for the entire weekend are liquidated and the overnight premium is multiplied by three. For example, at eToro, Wednesdays are the day on which open weekend positions are taken into account (spot forex trades are settled two days later). Other brokers may perform this operation on Friday itself.
What interest is applied in these cases?
In Forex the interest to be applied in the overnight rate is the difference between the overnight interest of the currency being bought and the currency being sold. In short, we are charged the interest on the currency sold and credited the interest on the currency bought.
All transactions in the foreign exchange market involve the purchase of one currency and simultaneously the sale of another. We will always have one currency bought and one currency sold when we have an open investment. Currencies are traded in pairs, so if we buy the EUR/USD we are actually buying euros and selling dollars. If we decide to go short and sell this pair, we will be doing the opposite operation; we will be buying dollars and selling euros at the same time.
So if you are wondering whether the overnight rate can be negative, the answer is yes. If the interest we are paid is higher than the interest we are charged, the difference is negative and the overnight premium will be in favour of the trader. In such a case, it will be an income in our trading account.
In the case of eToro, there is no overnight fee for cryptocurrency trades that are held for more than one day. Unless they involve leveraged short sales of Bitcoin or Ethereum.
– Currency Conversion at eToro
The trading account we open with eToro is in USD. That’s not to say that we can’t trade in currencies other than dollars, we can deposit cash to our trading account in our local currency (e.g. Euro). In fact, eToro allows you to trade in Euros, British Pounds, Canadian Dollars, Japanese Yen, Australian Dollars, Russian Roubles and Chinese Renminbi.
However, eToro will automatically convert them into dollars when you make any deposit and your account will show the balance in dollars.
eToro does charge a fee for converting a currency other than dollars. For cash withdrawals from your account, a currency conversion must also be performed and will incur a currency conversion fee.
The fee is fixed. However, depending on the currency to be used, it will be higher or lower.
In the following image you can see an example of the conversion rate applied by eToro versus the actual exchange rate at the time of taking this screenshot:
– eToro Withdrawal Fee
In cases where the trader wishes to make a withdrawal from the trading account to his bank account, e-wallet or any other means, a withdrawal fee will be charged.
The normal procedure at eToro is to request a withdrawal from the platform itself. So if a trader has made a number of profits and wishes to transfer that money to himself, he can do so from the appropriate menu.
The next step is to choose the amount. The payment method is usually already configured as it is the default payment method used for the deposit of funds. The minimum withdrawal amount at eToro is $50.
Once you have done this procedure, in addition to the local currency conversion fee (if it is not USD), eToro applies a flat fee of $5 for the financial service of transferring funds.
– eToro Inactivity Fee
In this case, the commission that eToro would charge is determined by the non-use of your trading account for a prolonged period of time.
How long do we have to be out of the account before eToro considers the account to be inactive? According to the terms and conditions of the contract , it is considered inactive if you have not logged in for 12 months for accounts with a balance on deposit and 4 months for accounts with no balance.
The commission will be charged on a monthly basis ($10) and from any balance the trader may have available.
This means that if we have open trades, the balance corresponding to the margin used in those trades is not considered as available and therefore the trade will not be closed. In other words, trades will not be closed if we are charged this inactivity fee. The commission is charged when the account returns to an available balance.
To keep your account active it is best to log into your account from time to time even if you are not going to be trading in the short term and if you are no longer interested in continuing to use the eToro platform it is best to ask to be removed from your account via the contact form with your username/email address to avoid any inactivity fees.
So much for this analysis of eToro’s most frequently used commissions. More details can be found on the broker’s website. To see how commissions impact your trading you can open a demo account with eToro where you have a virtual balance of 100,000 USD to test trade in a similar environment to a live account