eToro is the largest social trading network in the world with over 5 million users from more than a hundred countries. They had the official Polish launch on the 7th of December at Wroclaw. It turned out that however they’ve just entered the Polish market; they already have several users and also a top trader from the country. This is their first step entering the CEE region, further launches are expected soon.
CEE FinTech founder Zsombor Imre made an interview with Yoni Assia at impact’16 fintech/insurtech. Read the interview if you would like to learn more about what is eToro, how does it work, what are the underlying technologies, who are the top traders and more.
How do you define eToro?
eToro today is the largest social trading network in the world with over 5 million users from more than a hundred countries who can trade the global stock markets, like currencies and commodities. As a transparent platform, eToro allows users to automatically share their trades and portfolio with everyone on the network, allowing them to communicate and discuss trading strategies in real-time all over the world. Not only this but users can find the best traders from all over the world, follow them and automatically copy their transactions.
Copy trading is basically the term we invented for money management 2.0 where instead of going to an investment manager, you can see the top traders activities and portfolios on the platform and copy them automatically.
What is the smallest investment amount?
You can copy someone with a hundred dollars.
Could you please tell more about eToro’s history? Why have you started doing something like this in 2007 – because that’s quite early?
I have been a trader and programmer since the very beginning so I always had the interest and I started the company with my brother.
The question was how to simplify the user experience and create access to more people to the global market. Initially we started with UX, concentrated on the visual and fun experience in trading and part of it was social that became the main differentiator later.
You have 5 million users worldwide. Where are you serving these clients? Do you have one single entity?
We have several entities, a UK regulated brokerage, a European Cyprus regulated brokerage and an Australia through a regulated partner.
What is your business model?
Our business model is based on spread commissions from trades. We are normally much cheaper than traditional banks and brokers. We don’t charge management fee or copy fee.
eToro is always looking to expand into new geographical markets as seen with our recent moves into countries including China, Russia and now Poland. Additionally, we are continuously offering new developments on the eToro platform to ensure we are providing a first class service to our clients.
Our last round of finance we did was led by three of the largest institutions in the world PingAn from China, Sberbank from Russia and the German Commerzbank. We are also working on models to actually implement our platform for the banks, not as a white label solution, but under the eToro name and brand.
What languages does eToro support?
Currently we support 10 languages. We do not have Hungarian (although have several dozen thousands users from Hungary) but very much interested in the CEE, now launching in Poland in Polish and would also consider Hungary.
The plan for 2017 is to grow in the CEE region.
When you are doing do an international scale up first you start concentrating on the big markets.
Yes, we began with UK, Germany, France, Italy, Spain, China, Russia and the Middle East. Now we’re looking forward to expanding into smaller regions because we do believe these markets have significant market share.
Where do you have the strongest presence? What is your market share?
Our market share is relatively in the single digit percentage. Our strategy is more to grow wide than to grow deep.
When we are talking about industries – let’s turn it a bit around -, what stock changes are you supporting?
US, UK, Germany, Italy, Spain, France, currency markets globally, and now adding Russia, China stocks as well.
Who are you competing with and why?
Probably the biggest competition is not necessarily direct competition. It is how people currently trade the markets through their banks.
There are different companies in different regions who are offering similar services; Motif in US, several Chinese companies or Wikifolio in Germany. The main difference between us and our competition is that we’re global and all the others are local.
What growth and investment stages you have gone through?
We set up the company in 2007. We raised a total of 62 million USD investments in four rounds.
What sort of new technology are you using?
The new eToro platform is an HTML5 based both on desktop and mobile, which creates a unified experience.
As for the underlying technologies, our cloud provider is Azure, and also we’re using their machine learning and artificial intelligence at the top trader copy fund. The way we choose automatically how to copy traders and who to copy is based on machine learning. We are monitoring all of the traders and try to identify the most successful ones and distribute the traders’ money among these top ones.
You are a regulated business association so you have to do AML, KYC, which makes life a bit hard in the regulated environment. How do you handle that?
As a regulated company with CySec and the FCA, we are required to comply with their AML regulations.
We need to verify our clients’ identity and we do this either electronically or through submission of their documents which includes their government issued identity documents (e.g. passport).
Hungarian AML, KYC regulations do not allow Hungarian companies using that sort of verification, so verifications always have to be personal.
Hungarian residents are on boarded with eToro Europe which is regulated by CySec and so we have to comply with the CySec AML regulations which permits the use of electronic document verification.
Do you have any source of transactional risk management?
We aggregate all of the transactions of the clients and hedge them with our liquidity providers.
How do you do product development? Are you using any specific methodologies?
Generally it is agile development with CI/CD. (Continuous integration – continuous delivery) There were no mergers and acquisitions in our history, we always develop in-house.
Who are the typical traders? Have you met any interesting traders?
Typical traders are mostly private individuals. And yes, we found a lot of interesting stories for example we have a very young, 18-year-old trader in Norway who generated thousands of copiers, the press started talking about him and one of the brokerage firms hired him.
Are there any restrictions for trading?
Yes, under the age of 18, traders should get a power of attorney from their parents. There are a lot of responsible trading features on the platform, for example you cannot copy people with 7+ risk score.
Are there any people who are making their living out of being copied?
I think yes, there are, but for the majority of the people it is only a second thing. There are people who are making 50k USD on eToro annually.
What is going to be your next big hit?
Our product that we’ve launched last month, called CopyFunds copy fund, where we are partnering with professional money managers, brokerages. We have launched the first, but we are planning to launch several more with partners in the next couple of months, so hopefully there will be a lot of new exciting funds to copy on eToro!
Yoni Assia is the CEO of eToro, the world’s largest social investment network. He has shown an interest in finance and computer science since his youth and so decided to merge his passions. It was this very passion along with the social revolution, which led to the founding and development of eToro’s investment network, where users connect, share, trade and invest in the world’s financial markets. Yoni is as passionate about his business, as he is for his family, wife plus 3 kids, which often results in excessive use of the word awesome, and hi-fives around the office. It’s this young CEO’s vision to disrupt the old banking industry and replace it with a new online transparent and social financial system for the benefit for everyone. Yoni holds a B.Sc. in Computer Science and Management and an MSC in Computer Sciences.
Zsombor is a management consulting professional with e-business, fintech and payments specialization. He is founder, executive or board member of a number of companies. He benefits from previous work experience gained at Citibank, KPMG and Wizz Air. Zsombor holds MSc degrees in Finance and TTC, attended the CEMS Master in International Management programme and PhD studies in Finance. He has international project experience from 15 countries, gained numerous professional awards; he is a sought-after speaker. Zsombor served as the chairman of EPCA, the European Payments Consulting Association in 2014