You might have watched one or more of their ads on YouTube. You might have visited their website. They seem to be one more of the many stock trading apps. And they are licensed by the SEC, and a bunch of other regulators. Your money must be safe with them. Right? Read on.
Everything about their shady practices is discovered only after you make your (hefty) $200 minimum first deposit with them. That's where you may get the first red flag. Your deposit may not reach your account for days, weeks, or even months.
The second red flag is related to the first one. You are not allowed to transfer any asset you hold with another brokerage or wallet to them - something all legitimate brokers will allow you to do. Not even any crypto assets you may hold, unless they worth several thousands of dollars - and even then, your crypto-assets will be unavailable to you for several months (that's how eToro translates AML regulations).
Third red flag: they won't let you transfer out any assets you hold with them. You may only liquidate all your positions and withdraw funds in your bank or PayPal account. Even the notorious Robinhood will allow you to transfer out any stock you own, provided it's not fractional ownership. eToro won't.
The second and third red flags indicate that they do not report all their transactions to the exchanges - the ticker. Instead, they use the ticker to price virtual transactions that only exist in their books. It's like running a partially virtual portfolio, using real money. So, if the stocks you own lose value, they earn money. Even if you sell some stocks for profit, they know that chances are you won't be withdrawing your cash balance.
Fourth red flag: you are not allowed open a trade valued under $50 (stocks, ETFs), $33 (ForEx), or $25 (crypto). All legit brokers will allow you to open a position with no minimum, or for as little as $5. Their excuse? Your trades are commission-free.
Which brings us to the fifth red flag: the price you see in your terminal is not the real-time price you may get on Y!Finance, or any other website displaying real-time pricing data. The price difference may be anywhere from a few cents up to a few dollars a piece. E.g. if you buy 1xTSLA at $673.00, and try to immediately sell it, that sale would be priced at $671.50, not $673.00.
The two red flags indicate that the advertised 'commission-free trades' is simply a scam. They do charge you their (often huge) commission, but they disguise it as Bid/Ask price difference, despite the fact that in reality the Bid/Ask price difference is under 2-3 cents.
The fifth flag leads us to the sixth one. Inspired by ForEx trading apps, they offer leveraged trades for everything, except crypto. They do that through CFDs (Contracts for Difference - with the meaning of price difference). Similarly, they use CFDs if you wish to open a short position. And why not? Combined with the Bid/Ask price difference scam, you are in the red even if your prediction was right. So, you lose. Again. And that's where they charge you with fees. 0.05% to roll-over your CFD to the next day. Per day. It doesn't sound like much. How about 18% per year?
Are you a value investor hunting high dividend yield stocks? You lose too! Because there is another red flag. The sixth in a row.
Sixth red flag: dividends are 'forgotten' to be paid, unless you complain. Especially for less popular stocks than MSFT or T. A complaint though does not mean you receive any dividends you are owed. And then comes the seventh flag: tax is 'withheld' from any dividends you are paid, even if you are eligible for no tax withholding. Add to that another red flag (No 8): they cannot/won't mail you a copy of the form they filed with the relevant tax authority for the tax amount they withheld. They will only send you a 'report' they generate, which is as good as toilet paper - you cannot reclaim any tax by using that.
Flags 6 through 8, not only confirm flags 2 and 3 - they do not receive any dividends from the companies, since a large part of their trades are virtual - but they also indicate that they are using tax withholding as a 'legitimate' reason to pocket up to 30% of any dividends they owe you. This is why they cannot provide you with a copy of the forms they file with the tax authorities; they do not file any tax withholding forms. They simply 'pocket' tax withheld. What's worse is that trying to reclaim any tax withheld, may get you into trouble with your local tax authorities.
Ninth (and most alarming) red flag: as happens with all Ponzi schemes, their customer service will only offer canned (sometimes conflicting one to another) responses, often unrelated to the issue you are facing. They will try to close your ticket either by claiming your ticket to be duplicate to another ticket you have opened in the past, or by simply saying they will respond at a later time.
And finally, the tenth red flag: withdrawals are taking ages to be executed. As you may expect, fresh money from current and new customers finance withdrawals. Fresh money finances their operations (rent, salaries, etc.) and then withdrawals. Since withdrawals are not vital part of their operations, guess who is left holding the bag.
Verdict: eToro is a legit-looking Ponzi scheme reaching its limits, using fresh money from new customers to pay withdrawals to customers leaving the sinking ship. Do not open an account with them, and if you have, make sure you liquidate all your positions and withdraw your money, before the ship sinks for good.
Commission-free trades anyone?
