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If you are someone who spends any time watching videos on YouTube, the chances are that you will have seen one of eToro’s ads. Probably one of the ones in which they tell you how easy it is to trade stocks on their platform, commission-free.
The Israel-based stock, CFD and crypto trading house has even brought in some pretty big celebs for these ads, like Alec Baldwin:
Baldwin makes the whole thing sound so simple, and so . . . free (emphasis ours):
You just log in, pick a stock, set an amount, and hit trade.
And yeah, you gotta pay a commission, except . . .
No you don’t! Cause they don’t take one.
That’s right. You can invest in stocks with no commission
Zero. Nada. Zilch.
So it was with interest that we perused the press release announcing eToro’s Q1 results that landed in our inbox on Tuesday, particularly the top line:
That’s right: eToro more than doubled the amount of commission it earned year-on-year in the first quarter, to $347m — about a quarter of a billion pounds. Not bad for a company that is so generous in its offering of commission-free products.
It’s almost like they’re selling investors one message and consumers another, isn’t it? Shalom Berkovitz, chief financial officer and deputy chief executive officer, was quoted in the release saying:Â
3.1 million new registered users joined the eToro platform this quarter, a 214% increase compared to the same period last year. This increase in users and an increase in trading activity resulted in total commissions of $347 million in the first quarter of 2021, up 141% from the first quarter of 2020. Total commissions are comprised of commissions from trading activity, interest and other charges. They are a key performance indicator for eToro.
So yes, as we have written about before, as soon as you use any leverage, or decide to trade crypto, or CfDs — which is what eToro is known for — it turns out that you are not paying zero, nada, zilch commission; you’re actually paying quite hefty fees. And as we have also pointed out in the past, moving from trading stocks into other commission-heavy products is a pretty seamless experience.
But this isn’t about luring customers into fee-paying products, you understand; this is about empowerment. No, really. Like all good companies these days, eToro has a serious social mission, as chief executive Yoni Assia tells us:
eToro’s mission is to empower people to grow their knowledge and wealth and we see our platform as a bridge between the old world of investing and the new.
Despite all the tasty fee income, though, eToro’s profits actually fell 90 per cent in the first quarter to $5m, which the company attributed to heavy spending on marketing (we guess the likes of Baldwin don’t come cheap). The company is planning to go public in the US in coming weeks through a merger with a SPAC, of course, at a $10.4bn valuation.
We will be interested to see what happens to eToro’s profits when the current crypto mania starts to fade. The company isn’t exactly discerning when it comes to crypto — it offers more than 120 tokens, currently. The platform encourages users to “explore an ever-expanding variety of cryptocurrenciesâ€. (Ever-expanding, but ever-scarce too, remember. Digital gold!) And with spreads as large as 5 per cent for trading a token like Tezos, we just wonder how empowered people will start to feel if number go up ever stops working.
Related links:
When “commission-free trading†isn’t (really) free – FT Alphaville
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