eToro, a cash machine except for traders
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The broker eToro is one of the world leaders in the Forex market. All the ingredients are there to attract novice traders: a large social investment network, simple and intuitive trading software, a trading academy, bonuses at all times, a web presence and well-oiled communication.The broker eToro is a real cash machine for its creators and shareholders, but for the vast majority of registered novice traders, the outcome is far from that.
A post on the eToro broker website tells us that one of its advantages is having competitive spreads.We must not have the same concept of this word as eToro which is among the brokers with the highest spreads on Forex.
If we take the EUR/USD, the spread is 3 pips. For industry leaders, the EUR/USD spread does not exceed 1 pip (taking into account all commissions) as a recent study shows: Which Forex broker has the best spreads?It is therefore possible to find forex brokers with transaction costs 3 times lower than with eToro.
However, one element needs to be clarified. eToro is a broker with fixed spreads (see page fixed spreads or variable spreads). The transaction cost is therefore the same for each transaction, regardless of market conditions. It could therefore be said that eToro compensates for its high spreads through this mechanism. Well no! Looking at all of its competitors, the EUR/USD spread is mostly lower than 2 pips, i.e. 30 to 40% lower than eToro’s spread.
High spreads apply to all of eToro's tradeable products. It should also be noted that product choice is very narrow, which considerably limits investment possibilities.
If you visit the eToro website, it specifies that popular investors can have spreads divided by 2 (which would bring eToro back into the norm compared to its competitors who offer these spreads to all their clients). Only, there is a condition to this privilege, the traders who copy you have to total $300,000 in capital.In other words, only a handful of traders benefit from it.
The broker eToro regularly offers account opening bonuses for new clients but also allows longer standing clients to take advantage of a lot of bonuses.These bonuses constantly change but we can mention, for example, referring a friend, an invitation on social networks launched on your facebook account, which gives a bonus if you reach 5 copiers.
eToro's objective is of course to encourage traders to feed their social trading network and to get their brand on the net.From an economic and marketing point of view, it's clever but once a bonus is accepted, that is when the problems start for the trader.
If you click on the inconspicuous link in the general conditions (documented in English on the French site...), you can read this:
“In addition, if we suspect that a user has abused or attempted to abuse a promotion or otherwise acted in bad faith towards us (for instance, if you withdraw your initial deposit) then we reserve the right, at our sole discretion, to deny, withhold or withdraw from that user the promotion and if necessary to cancel any terms and conditions with respect to that user”.
Basically it says that once you have accepted a bonus from them, eToro grants itself the right to block you from withdrawing your initial deposit. This can be considered a fraud in an attempt to abuse the bonus given to you.The fact that it is not possible to withdraw the bonus before a certain volume of trade, is quite normal (eToro progressively unlocks your bonus) but the fact that you are prevented from withdrawing your initial deposit at any time is not!This money is yours, it belongs to you!
This practice is common with many other brokers, especially binary options brokers (seeBonus Brokers binary options:A scam?).Of course, by the time you unlock the bonus, you have had the time to raze your trading account (and the broker doesn't need to pay a penny for its bonus).
The only way to avoid this is to specify that you do not want any bonuses as soon as you open an account.You will then be completely free to withdraw your deposit and gains whenever you want.From the moment you accept the bonus, eToro may cause you problems (except for your gains, and even then...).
If you type: “etoro withdrawal problems” into google you will find comments from the few people who have made a withdrawal (yes because few people make gains despite eToro's social trading, I'll come back to this later) from this broker. It is a real obstacle course to withdraw your money. You have to send a request several times, confirm your action several times, provide documents (which have already been provided when opening an account), in short, everything is done so that you leave your money with eToro.I'm not saying that all cash withdrawals are refused, far from it, but I'm simply stating a finding based on the opinions of former clients.
eToro also has a little surprise for you in terms of withdrawal commissions. On their site, it is simply stated in their FAQs that "withdrawal requests are subject to processing fees". No fee schedule is displayed, you have to ask an advisor for details of the withdrawal fees, here are the rates:
- Up to $200 = $5 fee
- Between $201 and $500 = $10 fee
- From $501 to... $ = $25 fee
There is a withdrawal fee of between 2.5% and 4.9% depending on the amount, for amounts of less than $1,000. Simply to make a transfer to your bank account!If you think it's normal, then I can't help you.
Account formulas that push you to take risks
Depending on your deposit amount or your account balance, you will be assigned different types of accounts:
- A “Bronze” account for deposits and account balances under $1,000
- A “Silver” account for deposits and account balances between $1,000 and $4,999
- “Gold” and "VIP” accounts for amounts over $5,000.
The type of account will determine your bonus amount but above all the minimum available position size.As soon as your trading account exceeds $1,000, you will automatically switch to Silver and the micro lots (1,000 units, or 0.01 lot) are no longer accessible.You are then told that the minimum position size is a mini lot (10,000 units, or 0.1 lot).
In other words, you are encouraged to take additional risks (so that eToro gets more commission). On the EUR/USD, a pip is worth $1 with a mini lot (and $0.1 with a micro lot). If your account is at $1,000, a 50 pips stop on the EUR/USD means you risk 5% of your capital!Where's compliance with risk management rules in that??
The eToro broker responds to this question by telling you that by a simple request to your advisor you can access the micro lot again.We know very well that the majority of novice traders are not going to make this request and therefore take unwise risks.
The success of eToro comes largely from its openbook, which offers you the possibility of following a trader and copying his trades (identically replicate them) on your trading account. In principle, it makes you dream.You copy the best traders registered with eToro and all you have to do is cash in your gains.
First of all, it is important to know that 9/10 of traders are losing on Forex.eToro's customers (and signal providers with them) are no exception. Copying a trader is risky, it can lead to the total loss of your capital.Fortunately, the broker eToro has an insane safeguard.It prevents you from allocating all your capital on a single trader. To my knowledge, the investment is limited to 20% of your capital per trader. This forces novice traders to diversify and that's very good (we have to also mention things that are going in the right direction).
I visited eToro's openbook yesterday to look for the best traders to copy. I came out of the exercise with one point: all the most copied traders have no risk management, they are only looking for performance. To illustrate my remarks, let’s look at two examples:
- the most followed trader on eToro's openbook:She made 600% in 2014, and is currently at 25% in 2015.Without even looking in detail, I already know that this trader can raze her trading account in a few trades.The higher the performance, the greater the risk.I look at these risk statistics, and the maximum drawdown of 22% a day, 47% a week and 53% a year. If you act at the wrong time, you risk a lot!
If we look in detail at the statistics, despite the 25% performance in 2015, April totalled a loss of 11%. When I see that eToro’s risk indicator was 4 in that same month, I wonder how they calculate it. If for them achieving -11% over a month is not a risky strategy, then I wonder what is.
- The trader the most followed and recommended by the broker eToro:Some traders are approved by the eToro website itself. I looked at the trader's drawdown and saw:-52% daily, -70% weekly and -76% yearly.Performance was 900% last year. For the year 2015, a 50% gain in 2 months followed by three months of losses: -13%; -33%; -8%.
I can give you 1000 examples just like that.When I see this, I wonder how eToro's openbook can attract so many novice traders, like they are really not aware of the risk involved! and eToro's risk indicator is extremely far from reliable!The 2 traders I quoted should have maximum risk indicators, and yet they are far from it. Another great eToro manoeuvre to push their clients to follow more traders and therefore generate more commissions.
I found a nice sentence on a forum that sums up the absurdity of such a system: “I'm betting by copying a trader a bit like I'd bet on a football match or a good horse" and he adds: "you have to follow traders regularly because a trader can crash in a few hours with -100% in the end".
eToro’s openbook works a bit like a trading contest.The most followed trader is the one who takes the most risk and is fortunate enough not to have razed his trading account yet.But that day comes, sooner or later, and it is the novice traders, the copiers who pay a high price!
The broker eToro has an impressive business model. It has all the tools that beginner traders love, and it works!Only in reality, we realize that everything is done to get the most out of each client. Individual traders have nothing to gain from this broker. The eToro openbook is a dream machine where risk management has no place.The eToro broker has nothing to be blamed for (it is moreover authorized by the AMF), they just exploit the fact that novice traders are obsessed with performance. But you have now been warned, know that if you fall into this trap, you will lose all your capital!I therefore strongly advise against opening a trading account with this broker.
Spreads among the most expensive on the market
A post on the eToro broker website tells us that one of its advantages is having competitive spreads.We must not have the same concept of this word as eToro which is among the brokers with the highest spreads on Forex.
If we take the EUR/USD, the spread is 3 pips. For industry leaders, the EUR/USD spread does not exceed 1 pip (taking into account all commissions) as a recent study shows: Which Forex broker has the best spreads?It is therefore possible to find forex brokers with transaction costs 3 times lower than with eToro.
However, one element needs to be clarified. eToro is a broker with fixed spreads (see page fixed spreads or variable spreads). The transaction cost is therefore the same for each transaction, regardless of market conditions. It could therefore be said that eToro compensates for its high spreads through this mechanism. Well no! Looking at all of its competitors, the EUR/USD spread is mostly lower than 2 pips, i.e. 30 to 40% lower than eToro’s spread.
High spreads apply to all of eToro's tradeable products. It should also be noted that product choice is very narrow, which considerably limits investment possibilities.
If you visit the eToro website, it specifies that popular investors can have spreads divided by 2 (which would bring eToro back into the norm compared to its competitors who offer these spreads to all their clients). Only, there is a condition to this privilege, the traders who copy you have to total $300,000 in capital.In other words, only a handful of traders benefit from it.
Bonuses at eToro's that make you doomed to win
The broker eToro regularly offers account opening bonuses for new clients but also allows longer standing clients to take advantage of a lot of bonuses.These bonuses constantly change but we can mention, for example, referring a friend, an invitation on social networks launched on your facebook account, which gives a bonus if you reach 5 copiers.
eToro's objective is of course to encourage traders to feed their social trading network and to get their brand on the net.From an economic and marketing point of view, it's clever but once a bonus is accepted, that is when the problems start for the trader.
If you click on the inconspicuous link in the general conditions (documented in English on the French site...), you can read this:
“In addition, if we suspect that a user has abused or attempted to abuse a promotion or otherwise acted in bad faith towards us (for instance, if you withdraw your initial deposit) then we reserve the right, at our sole discretion, to deny, withhold or withdraw from that user the promotion and if necessary to cancel any terms and conditions with respect to that user”.
Basically it says that once you have accepted a bonus from them, eToro grants itself the right to block you from withdrawing your initial deposit. This can be considered a fraud in an attempt to abuse the bonus given to you.The fact that it is not possible to withdraw the bonus before a certain volume of trade, is quite normal (eToro progressively unlocks your bonus) but the fact that you are prevented from withdrawing your initial deposit at any time is not!This money is yours, it belongs to you!
This practice is common with many other brokers, especially binary options brokers (seeBonus Brokers binary options:A scam?).Of course, by the time you unlock the bonus, you have had the time to raze your trading account (and the broker doesn't need to pay a penny for its bonus).
The only way to avoid this is to specify that you do not want any bonuses as soon as you open an account.You will then be completely free to withdraw your deposit and gains whenever you want.From the moment you accept the bonus, eToro may cause you problems (except for your gains, and even then...).
Complicated and expensive cash withdrawals!
If you type: “etoro withdrawal problems” into google you will find comments from the few people who have made a withdrawal (yes because few people make gains despite eToro's social trading, I'll come back to this later) from this broker. It is a real obstacle course to withdraw your money. You have to send a request several times, confirm your action several times, provide documents (which have already been provided when opening an account), in short, everything is done so that you leave your money with eToro.I'm not saying that all cash withdrawals are refused, far from it, but I'm simply stating a finding based on the opinions of former clients.
eToro also has a little surprise for you in terms of withdrawal commissions. On their site, it is simply stated in their FAQs that "withdrawal requests are subject to processing fees". No fee schedule is displayed, you have to ask an advisor for details of the withdrawal fees, here are the rates:
- Up to $200 = $5 fee
- Between $201 and $500 = $10 fee
- From $501 to... $ = $25 fee
There is a withdrawal fee of between 2.5% and 4.9% depending on the amount, for amounts of less than $1,000. Simply to make a transfer to your bank account!If you think it's normal, then I can't help you.
Account formulas that push you to take risks
Depending on your deposit amount or your account balance, you will be assigned different types of accounts:
- A “Bronze” account for deposits and account balances under $1,000
- A “Silver” account for deposits and account balances between $1,000 and $4,999
- “Gold” and "VIP” accounts for amounts over $5,000.
The type of account will determine your bonus amount but above all the minimum available position size.As soon as your trading account exceeds $1,000, you will automatically switch to Silver and the micro lots (1,000 units, or 0.01 lot) are no longer accessible.You are then told that the minimum position size is a mini lot (10,000 units, or 0.1 lot).
In other words, you are encouraged to take additional risks (so that eToro gets more commission). On the EUR/USD, a pip is worth $1 with a mini lot (and $0.1 with a micro lot). If your account is at $1,000, a 50 pips stop on the EUR/USD means you risk 5% of your capital!Where's compliance with risk management rules in that??
The eToro broker responds to this question by telling you that by a simple request to your advisor you can access the micro lot again.We know very well that the majority of novice traders are not going to make this request and therefore take unwise risks.
eToro's openbook: a giant casino!
The success of eToro comes largely from its openbook, which offers you the possibility of following a trader and copying his trades (identically replicate them) on your trading account. In principle, it makes you dream.You copy the best traders registered with eToro and all you have to do is cash in your gains.
First of all, it is important to know that 9/10 of traders are losing on Forex.eToro's customers (and signal providers with them) are no exception. Copying a trader is risky, it can lead to the total loss of your capital.Fortunately, the broker eToro has an insane safeguard.It prevents you from allocating all your capital on a single trader. To my knowledge, the investment is limited to 20% of your capital per trader. This forces novice traders to diversify and that's very good (we have to also mention things that are going in the right direction).
I visited eToro's openbook yesterday to look for the best traders to copy. I came out of the exercise with one point: all the most copied traders have no risk management, they are only looking for performance. To illustrate my remarks, let’s look at two examples:
- the most followed trader on eToro's openbook:She made 600% in 2014, and is currently at 25% in 2015.Without even looking in detail, I already know that this trader can raze her trading account in a few trades.The higher the performance, the greater the risk.I look at these risk statistics, and the maximum drawdown of 22% a day, 47% a week and 53% a year. If you act at the wrong time, you risk a lot!
If we look in detail at the statistics, despite the 25% performance in 2015, April totalled a loss of 11%. When I see that eToro’s risk indicator was 4 in that same month, I wonder how they calculate it. If for them achieving -11% over a month is not a risky strategy, then I wonder what is.
- The trader the most followed and recommended by the broker eToro:Some traders are approved by the eToro website itself. I looked at the trader's drawdown and saw:-52% daily, -70% weekly and -76% yearly.Performance was 900% last year. For the year 2015, a 50% gain in 2 months followed by three months of losses: -13%; -33%; -8%.
I can give you 1000 examples just like that.When I see this, I wonder how eToro's openbook can attract so many novice traders, like they are really not aware of the risk involved! and eToro's risk indicator is extremely far from reliable!The 2 traders I quoted should have maximum risk indicators, and yet they are far from it. Another great eToro manoeuvre to push their clients to follow more traders and therefore generate more commissions.
I found a nice sentence on a forum that sums up the absurdity of such a system: “I'm betting by copying a trader a bit like I'd bet on a football match or a good horse" and he adds: "you have to follow traders regularly because a trader can crash in a few hours with -100% in the end".
eToro’s openbook works a bit like a trading contest.The most followed trader is the one who takes the most risk and is fortunate enough not to have razed his trading account yet.But that day comes, sooner or later, and it is the novice traders, the copiers who pay a high price!
Conclusion
The broker eToro has an impressive business model. It has all the tools that beginner traders love, and it works!Only in reality, we realize that everything is done to get the most out of each client. Individual traders have nothing to gain from this broker. The eToro openbook is a dream machine where risk management has no place.The eToro broker has nothing to be blamed for (it is moreover authorized by the AMF), they just exploit the fact that novice traders are obsessed with performance. But you have now been warned, know that if you fall into this trap, you will lose all your capital!I therefore strongly advise against opening a trading account with this broker.
