Is eToro a scam?

Or the fastest way I ever lost $50. Actually “only” $25…

But first of all the I’ll answer the question posed in the title of this entry: no. eToro is not a scam. However it’s very easy to lose money if you’re not careful. And unfortunately I wasn’t that careful.

And now on to the story. I discovered eToro accidentally and I’ve spent quite a few days on the demo account to familiarize myself with the system before commiting to deposit. Unfortunately there are some differences when you’re dealing with a real account. Differences I didn’t know about until after I actually made the deposit. If you read around about Forex trading systems, there are warnings everywhere to only invest money that you afford to lose. And I heeded them, although the $50 required as the minimum amount to be deposited is at the top of my “I can gamble that” threshold. On the demo I wasn’t actually trading currencies but commodities, more specifically gold and as it was going very low I thought hey, I can’t go wrong with this, it has to climb back to a “normal” rate sometime and that could earn a bit of money. I could even set a “take profit” limit and have the computer work for me…

This is where I went wrong. You see, on the demo account they give you 2000 virtual dollars to play around with (and you can request more by contacting customer care) and this gives you the ability to use low leverages. To be short: leverage gives you the ability to “move” a large sum of money by using a small amount of money. So I made my deposit and clicked the commodities tab only to find out that the minimum amount of money I should have had to be able to start one trade with gold was $200. Nasty. Clicking back to the Forex tab I received another blow: with $50 deposited one could only initiate two trades and these trades are incredibly risky as you’re using a 400x leverage. You can indeed win big with this leverage but it’s a lot more likely that you’ll lose big. You see when you initiate a trade there’s a “stop loss” defined and with a 400x leverage it all becomes very sensitive. What I mean is that if the exchange rate suddenly moves by a few thousandths of a unit, you’re not there to close your trade in time and your trade’s stop loss is tipped you lose all the money you invested in the trade. Even if the rate later returns, your money is gone. Lower leverages give you less profit but the currency can fluctuate quite a lot without risking too much. But lower leverages require more money. With 400x trades you’re practically playing an action game watching the 1 minute charts, keeping a close eye on the slightest modifications in the exchange rate and hitting the close trade button at the right time.

And this is where another downside of eToro comes into play. While the interface is butter smooth in demo mode but there are serious lags when switching to real money trading. And it’s not my imagination, many others are also complaining about this around the web. And these lags can cost.

I stopped when my balance went under $25 and I couldn’t initiate another trade. Now we’ll see if my withdrawal request will actually yield because the process sort of started out on the wrong foot as I requested the withdrawal to be made via PayPal yesterday and today they’ve sent me an e-mail requesting my bank account details and stating that I’ve requested the money by wire transfer. I politely replied that they’re wrong, and even their interface confirms this. (I’ll keep you posted on how this all progresses - watch this post for updates.)

I wrote this post to give others a chance to learn from my mistakes before commiting to deposit. Hopefully…

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