Steal your money
Hi everyone, today we gonna talk about mecanism behind a broker like eToro. And by the way it’s perfect time to knock the common idea that brokers want you to fail in trading !
In deed we often see comments of people who had lost all their money in few days, crying after the broker or the regulator.
We will see that it is not so simple 🙂
Or not
The misunderstanding is due to a lack of knowledge about brokers ; Most people do not understand how they earn money.
Let’s take some example. If you open a 100$ buy position on Apple stock at 1000$ with X1 leverage. If apple go to 900$ it lost 10%. Now you panic and close your position. You get back 90$ and lost your 10$. What do you think about these 10$ ? is eToro taking them and is Yoni buying a champagne bottle with that ? … NO.
This money you loose go into a big wallet used to paid traders that close their trades in green ! The story is the same if you use leverage.
If you had open the same position as before but with *10 leverage you should not had lost 10% but 100% (10%*10) of your money …
Leverage is a subject that can take a full other post, I will do not talk more about this here.
So how eToro earn money ?
Fees
Brokers earn money by several kinds of fees they take. Here some examples :
Spread : each time you open a long position
Rollover fees : When you maintain open a position with leverage
Withdrawal fees : each time you take your money from etoro (25$ by withdrawal)
This is Why Brokers doesn’t want you to loose your money fast. To optimize their profits they need you to stay as long as possible , opening the more trade you can, generating a lot of fees ! This is a virtuous circle .
On eToro this is particularly right , with the copy trading , top traders are fully active. When a top trader open 1 position, his 1000 copiers open it too , generating lot of fees . Etoro is happy, the top trader who have a lot of copiers , and the copiers too 🙂
Do not hesitate to contact for questions
Regards