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“The world’s leading social trading platform”, global multi-asset investment platform eToro offers zero-commission trades on stocks, while there is no platform fee to pay. For those looking to trade stocks from the UK and beyond regularly, who are happy with a taxable, US$-denominated account, eToro might be a great choice.
Top features of eToro’s account
An eToro account lets you trade thousands of UK, European, US and other international stocks, as well as exchange-traded funds (ETFs), as well as commodities, currencies, indexes and cryptocurrencies. There are zero commissions on trades for stocks, and no platform fees.
eToro is notable for its promotion of social trading. There is an active community of investors to be engaged with if desired. It is also possible to view other users’ holdings if they have a public profile. Switching between public and private profiles is quick and easy to do. There is also the opportunity to copy other investors and to be copied by others. Being copied by others can become a lucrative source of income.
Alternative investments, like cryptocurrencies and contract for difference (CFD) trading, do feature heavily in eToro’s marketing. Also, leverage is allowed on CFD trades, resulting in potentially losing more than was originally invested. Here at The Motley Fool, we would not advocate trading in leveraged CFD positions or cryptocurrencies. However, eToro does offer the chance to buy-and-hold shares in high-quality, shareholder-focused listed companies, of which we are in favour. To eToro’s credit, it does display in a banner on its website the fact that the majority (67% at the time of writing) of CFD traders on its platform lose money.
eToro commission prices
eToro offers zero-commission on stock trading, and there is no platform fee.
Fees you should know about
Although eToro does not charge commissions on stocks, it does charge a spread. Charging a spread is not unusual and has to be weighed against the benefits of zero commissions. I have found that eToro’s spread on UK stocks can be anywhere from 4% to 13% wider than listed on the London Stock Exchange website during normal trading conditions. Stocks in smaller companies with less trading volume tend to have the highest spreads. Spreads increase in volatile markets.
The spread is the difference between the bid and offer prices. Buying happens on the offer, and selling happens on the bid. Since the offer is almost always higher than the bid, trading normally incurs a cost for “crossing” the spread. An eToro user will have to buy a bit higher and sell a bit lower than on other platforms that may not charge a spread. According to my calculations, a round trip trade on eToro might add around 0.13% in spread costs to a UK stock trade in normal conditions. However, on a $100 position that would be around 13 cents.
Withdrawals and deposits into an eToro account are conducted in USD. Paying GBP into an eToro account, or withdrawing from one in GBP, will incur a 50-100 pip conversion charge depending on the method used. There is also a flat $5 withdrawal fee to pay and the minimum withdrawal amount of $30.
As an example of how the conversion charge works, let’s consider that one GBP should buy 1.5000 USD. When paying into an eToro account in GBP, the rate will be lowered by 50 to 100 pips or 1.4950 to 1.4900. Instead of $750 landing in the account, the amount would be between $745 and $747.50. Withdrawing from the account would incur a $5 charge, making $740 or $742.5 available for conversion at a rate of 1.5050 to 1.5100. Between £490 and £493 would be received back.
A $10 monthly inactivity fee is charged on any remaining balance if an account holder does not log in for 12 months or more.
Finally, eToro allows leverage and shorting via the use of CFDs. Doing this will attract overnight and weekend fees, which scale with trade size and degree of leverage.
Buying shares, ETFs and funds with a eToro account
With an eToro account, buying shares and ETFs is easy – simply search for the instrument, click through to its home page and find the trade button. Once clicked, a pop-up will allow the trade to be adjusted and the position opened.
Opening an account is straightforward, much like signing up to anything else on the internet, but with a few unique twists since this is a trading account. All eToro users have to provide a Tax Identification Number, which will usually be a National Insurance Number for UK residents. Also, account verification is required, for which proof of address (e.g. a bank statement) and proof of identity (e.g. driving license) will have to be scanned and uploaded.
There is a minimum first-time deposit amount of $200 for UK residents. All subsequent deposits are required to be at least $50. It is worth noting that for deposits made by wire transfer, the minimum required is $500.
eToro accounts are taxable: there are no ISA or SIPP accounts on offer. Account users will be liable to pay tax on interest and capital gains made on investments made within an eToro account.
After a period of familiarisation, eToro’s platform is easy to use. There is a fairly standard setup, with a sidebar and header bar to navigate and search and a central display. The user home view contains a link to a stats page to view monthly performance and eToro’s assessment of portfolio risk, average profit and loss, number of trades and average holding period. The portfolio tab shows allocations graphically with a bit of tweaking. The clarity and presentation of this information is a strength of the platform. eToro does an excellent job of giving its users the ability to understand what they are holding and how they are performing, and perhaps match perception with reality.
Certain browsers seem to have minor difficulties with the eToro platform. For example, clicking on the watchlist tab does nothing when using Safari. However, there are no issues when using Chrome.
eToro’s research offerings
eToro does not produce dedicated research into individual securities for account users. It is possible to filter and sort investments by type, sector and country, but the platform lacks a proper investment screening feature. It is possible to build multiple watchlists of stocks, and adding new stocks to them is easy, once they have been found.
Most stocks have basic information like 52-week range, price-to-earnings ratio, dividend yield and sector available on their home page. There is also abbreviated financial information. Do be mindful that any investment information and expert opinion provided on eToro’s website is not personal advice and is designed for investors who are happy making their own investment decisions. If you’re unsure about the suitability of an investment for your circumstances, you’ll want to seek out your own independent financial advice.
For US stocks, the platform does include a list of broker recommendations and target prices but does not provide the underlying research to users. Also, there is information on institutional activity in US stocks and insider trading.
Overall, an investor who wishes to research stocks will probably have to look outside the eToro platform.
Service and support
eToro’s customer service centre includes a searchable help page, which can address most questions a user might have. Users can open a ticket with customer service for issues that cannot be resolved via the help centre. A response is usually received by email within in 24hrs, but it might take up to 7 days during busy times.
Live chat services are not available in the UK at this time, and there is no dedicated telephone number. Many users may find this lack of real-time communication off-putting, especially when dealing with withdrawals, which can take 3-8 business days to process in full, and are usually processed using the original payment method, which may need to be changed.
If you’re ever unsure about the suitability of an investment for your own circumstances, please seek independent financial advice.
Is an eToro account right for you?
For a UK-based investor looking to buy and hold international stocks, and trade regularly, eToro could be a good choice because of the lack of commissions on stocks, no platform fee and ease of use. An investor will have to be comfortable doing their own stock research, and have another source to do this with as eToro’s offerings in this regard are limited. The opportunity to be copied by others can be financially rewarding, which might appeal to those looking to build another income stream.
However, even a private profile is searchable, although only a username and country will be visible. Some might find this unacceptable. In addition, eToro’s marketing material does, I feel, promote alternative investments and CFD trading, and there are frequent alerts of stocks rising and falling if held in a portfolio or watchlist. This might become distracting.
Because eToro accounts are denominated in USD, UK investors have to consider the fact that exchange rate changes will affect the value of their investments measured in GBP.
Something that is common to all investment accounts that are not ISAs or SIPPs is the issue of taxes. If an investor has not used their full tax-free or deferred investing allowance, they need to ask themselves why not before opening a taxable account like eToro’s.
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