May 12, 2017 by Andrew Minalto - 6 Comments

eToro Trading FEES – How eToro Makes Money and How to REDUCE Your eToro Account Fees!

Welcome Back!

Another Friday and another Reader’s Question post.

Today we’re going to take a closer look at eToro and specifically – their FEES, and most importantly I will show you how to reduce your fees to an absolute minimum. This means that you take home more money from your social trading!

For people who are new to social trading and eToro’s revolutionary platform, then I suggest you first check out my definitive eToro Trading Guide here. But if you’re already familiar with eToro, are already trading and hopefully making a good profit on your investment, then you know how important it is to pay as little in fees as possible – obviously the fees come out of your profit, so more fees equals less money for you at the end of the day!

And this is exactly what Ryan asked about in his recent email:

Hi Andrew!

I love your blog and appreciate all the free advice you have published here.

I have followed your eToro trading guide as financial trading is something I have always been interested in but general Forex trading seems way too risky to me. eToro on the other hand makes much more sense to me, especially the Copy Trader function.

I have started with an initial investment of just £500 but am already seeing good progress by following just a few traders.

The question I wanted to ask you is about fees – when and what fees does eToro charge for trading? Is it a monthly invoice like with eBay? Or does it work in a different way? I couldn’t find any trading fees table on the website so not sure how and what they do charge.

Thank you in advance!

Best of luck,
Ryan

Thanks for your question Ryan. I have actually received a few emails about this from my blog readers who are confused about what fees eToro charge and how exactly they make money…

And I can see why there’s some confusion as eToro don’t charge direct fees, at least not in the way you’re thinking – how eBay and Amazon do with a straight percentage fee for using their service.

On eToro and on trading platforms in general, it doesn’t work like that! Instead these companies generally make their money from spreads and overnight fees…

Now don’t worry if those two terms mean nothing to you because I’m going to go through them now.

The Spread

When you trade a stock, commodity, currency etc., the buy price and the sell price are DIFFERENT. If you’re buying the price is slightly higher than if you’re selling and this difference in buy and sell price is called the spread.

The spread is not the same for all markets and differs based on what you’re trading.

For example, let’s look at Apple stock on eToro (which has the ticker AAPL):

As you can see, if I want to buy Apple stock, the price is 146.63 but if I want to sell (or short) Apple stock, then the price is 146.54.

Now this is a difference of 0.09 BUT in trading terms, we call this 9 points or 9 pips.

A PIP technically stands for Point In Percentage but that doesn’t really mean much… A simpler and more useful explanation is that a pip is the smallest amount by which the price of a market can change.

Going back to our Apple example, the current buy price of the stock is 146.63 and the smallest amount by which that can go up is 1 pip, which would make the new price 146.64

I really hope that makes sense?

So moving back to the spread, which we now understand in terms of pips, and for Apple it is 9 pips. But like I mentioned earlier, the spread is different for stocks, currencies, commodities etc.

For example, let’s look at Oil:

Here you can see that the sell price is 45.66 while the buy price is 45.71, which means there’s a spread of 5 pips.

Let’s also take a look at a currency, EUR to USD:

In this case the sell price is 1.0956 and the buy price is 1.0959, which means there is a 3 pip difference between the buy price and the sell price.

Looking at this currency pair and you can hopefully see why we use pips instead of just saying the difference in price. Because while for Apple stock and Oil, one pip is 0.01, for this currency it’s 0.0001 which can become very confusing.

Generally speaking, currencies have the smallest spreads, followed by commodities, and then stocks generally have a larger spread. The reason for this is to do with liquidity and trading volume, but it’s not really necessary for us to know about that.

But what is the point of the spread? Why have different buy and sell prices and how does that provide a fee to eToro?

Well it’s simple really – I’ll explain using another example, Google, so you can see exactly what I mean in real life terms.

Here are the current buy and sell prices for Google stock (GOOG):

The sell price is 931.26 and the buy price is 931.70, which is a spread of 44 pips but what this actually means is that the “real” price is somewhere in between, let’s say roughly 931.48. So when you buy, you’re paying a higher price, and when you sell, you’re selling for less… that’s in effect eToro’s commission/fee for this trade – though please do bear in mind that this is an incredibly oversimplified explanation.

This isn’t something specific to eToro – it’s just how these trading platforms make money and it’s why whenever you open a trade, you start off in the red (at a loss) – that’s all due to the spread!

For example, I buy $10,000 worth of Oil at a buy price of 45.65 – now immediately that trade starts at a loss because if I want to sell my position (to close the trade) I have to accept the sell price of 45.60 – which means roughly $9989:

And you can see this in the below screenshot (though the price had gone up one pip, to 45.61):

I hope you now fully understand what a pip is, what a spread is, and how that affects your trading and profit. The spread is really a very small “fee” to pay, as it only works out at a fraction of your overall trade amount (in the above case it was roughly $10, so 0.1%)

Overnight Fees

Next up we have overnight fees!

Exactly as the name implies, this is a fee you’re charged if you keep your trade open “overnight” – i.e. when the markets close for the day.

Once again this fee differs depending on the market and the specific product that you’re trading but let’s run through a few real examples so you get an idea of how this really works.

Looking once again at Apple stock – if I’m buying $5,000 worth of Apple at 5x leverage, that works out at an exposure or real trading amount of $25,000.

And it’s on this amount that the overnight fee is calculated and in this case it’s $3.43:

So what that means is that every day the trade is left open, you’ll be charged a $3.43 fee. And if you leave the trade open at market close on Friday, you’ll be charged the weekend overnight fee, which is three times the daily fee (Friday, Saturday, and Sunday night).

$3.43, based on the trade size of $25,000 works out at a daily fee of 0.01372% and while that does seem like a miniscule amount, you have to remember that it’s per day and over time it does add up! Say for example you’re a long term trader, who buys stocks based on sound principle and value rather than the current market trends, and therefore you hold your position for a long time… sometimes even years.

Well even something as small as 0.01372% adds up to 5% in a year. And 5% of $25,000 is $1,250 – not such a small amount now! And this overnight fee really is a negative point if you’re a long term trader – as 5% is just too much – it gives a big advantage to the short term, in and out, style of trading.

BUT don’t fear, as I have a solution to this, but more on that a bit later.

Not only is this overnight fee different depending on the market and specific instrument you’re trading, it also changes based on whether you’re buying or selling.

The same size trade, but selling Apple stock instead of buying it, has an overnight fee of just $1.23 – nearly 3 times less:

You can find a full list of the overnight fees charged for currencies, stocks, indices, commodities, ETFs here.

And there you have it – that’s how eToro charge fees on your trading.

The one exception is the overnight fees for long term trades, but as I mentioned earlier, there’s a solution to this!

eToro don’t charge any overnight fee for “non-leveraged buy positions”. What that means is that if you place a buy trade and don’t use any leverage – i.e. you only use your own cash, then you won’t be charged any fee at all!

If I go and place another trade for Apple stock, again with an exposure of $25,000, but this time I don’t use any leverage, then you can see the daily fee is $0:

Easy! 😉

Now other than this there’s nothing we can do about the trading fees, there’s no way to minimise or avoid paying them… BUT what we can control (to some extent at least) are the fees we pay when depositing and withdrawing and these can actually have a much bigger impact on your net profit so it’s paramount that you get this right!

Though I have covered them in previous blog posts, let’s quickly run through the fees again.

Deposit Fees

The minimum deposit is $200, anything less than that won’t be accepted:

You can deposit in 6 currencies:

  • USD
  • EUR
  • GBP
  • JPY
  • AUD
  • CAD

BUT all currencies are converted to USD:

So if you deposit in one of the 5 other currencies, you’ll be charged a conversion fee, which depends on the currency. For example, from EUR to USD it’s 250 pips, but for GBP to USD it’s 50 pips.

This is charged on your initial deposit, to convert from pounds to dollars and then charged again when you withdraw, to convert back to pounds.

Once again, I’ll use a real life example to illustrate how this works.

Say I’m making a £1,000 deposit, which is $1295.40 using the conversion rate of 1.2954:

But the conversion fee is 50 pips, meaning instead of 1.2954, it will be 1.2904, meaning I’ll have $1290.40 which is exactly $5 lost in fees. A similar amount again for the withdrawal conversion and that’s $10 in total from a £1,000 deposit – or 0.77%.

And this percentage will remain constant regardless of the deposit amount as it affects the exchange rate you’re given.

The only way to avoid this currency conversion fee is to deposit in USD but this will also result in fees from your bank/whichever service you use.

High street banks are usually incredibly uncompetitive when it comes to international bank transfers so I’ll use Transferwise for a comparison instead. With them a £1000 deposit results in $1289.55, which is actually a bit less than when using eToro for the conversion:

The problem with using such a service is when it comes time to withdraw, as you have to use the same source to withdraw that you did to deposit! So there’s really no point in finding better exchange rates online as eToro fees are already very good.

PRO TIP! Use cash-back credit cards! You can find deals on new cards when you can get up to 3% cash-back for first 3 or even 6 months and after that period – cash-back offers of around 1%. This 1% is more than enough to cover the currency conversion rates and if you do large withdrawals, even the whole withdrawal fee. If you need more information/advice on these cards, check out Money Saving Expert website for more advice.

Withdrawal Fees

You are charged a set fee to withdraw money from eToro, based on the withdrawal amount, as below:

So for the first bracket, the $5 fee works out at between 25% and 2.5%, which is quite high but understandable because the amounts are so low.

For the second bracket, of more than $200 and up to $500, the $10 withdrawal fee works out at between 5% and 2% – still fairly high…

Then for the final bracket you’re charged 5% at the most and then the more you withdraw, the less the $25 fee is, in terms of the overall percentage.

Generally speaking the more you withdraw, the less it costs you but that obviously isn’t always the case. Just by looking quickly at the table you can see that a $200 withdrawal costs 2.5% ($5) but a $250 withdrawal costs 4% ($10).

There’s not too much you can do to avoid these fees either, but sometimes you can save a bit by using the brackets to your advantage.

Say you need to withdraw $700 – if you did it all in one go that would cost you $25 but instead you could split it into two separate withdrawals of $200 and $500 and pay fees of $5 and $10 so $15 in total – saving you $10.

Other than that there’s not much that can be done. The withdrawal fees are very reasonable for larger sums ($10,000 upwards) anyway.

And there’s one final point before we finish off today’s Reader’s Question post and that’s the Inactivity Fee.

If you don’t login to your account at all for a period of 12 months, then eToro will deduct $5 a month from that point onwards as an inactivity fee.

Obviously this shouldn’t apply to anyone because we’re supposed to be monitoring our accounts on a weekly basis but if for some reason you’re not following any traders and you’re not trading yourself but you still have money in your account, make sure to login every now and then to make sure you don’t get any deductions.

Ok, that’s it for today!

As always, if you have any questions you want me to cover in future Reader’s Questions posts, get in touch with me via my help desk here. I will personally reply to all emails within 24 hours, Monday – Friday and if your question is interesting enough, I will do an extensive post on the topic and publish it on my blog.

Enjoy your weekend!

Andrew

P.S. When you sign up to eToro via my referral link, I do get paid a referral fee. But in no way that affects my thoughts about eToro in this article.

All trading involves risk. Only risk capital you’re prepared to lose. Past performance does not guarantee future results. This post is for educational purposes and should not be considered as investment advice.

6 Comments
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  1. Hello Andrew, thank you for this useful article. Is there a way to use Transferwise’s new Borderless Account to avoid bank’s and etoro’s fees? I use my Australian bank account for deposit and would be great depositing and withdrawing through transferwise, which has accounts in USD or GBP. Thank you

    1. Andrew Minalto

      Hi Giovanni,

      I’m not sure, it could work.

      I do use Transferwise Borderless Account for my Amazon businesses but haven’t thought about eToro. Not sure how the verification will work there but you should simply contact eToro and ask them whatever this can be done or not.

      Thanks,
      Andrew

  2. Nicely explained and understandebel!

    1. Andrew Minalto

      Good to hear that! 😉

  3. Hi Andrew, you have written a really good article,

    I am planning to start copying traders using eToro in the next weeks, but before that I have a very basic question: As eToro converts your local currency into USD, What is your recommendation to hedge the currency risk?

    For example,

    I deposit 4000 EUR that are automatically converted to 4625 USD (based on eToro exchange rate)

    Then I invest the following:
    (1).- 2312 USD copying a Trader
    (2).- 2313 USD to “SELL EURUSD” to hedge the currency risk

    If after some days/weeks/motnhs I decide to stop copying the trader (1) and withdraw the funds (if positive), then I should also close position (2) the same day, therefore hedging the currency risk.

    Does this make sense or have you applied something similar?

    Many thanks

    Regards

    1. Andrew Minalto

      Hi Victor,

      I don’t really understand how this would help you?

      If the EUR/USD increases over that time period, you accumulate loses. And if the trader makes loses, you make double loses.

      This doesn’t really secure you anything.

      Andrew

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