Global investment platform eToro is eyeing off the Australian market
Private-i
Australia’s brokerage industry is getting a bit of a shakeup, as a number of new competitors enter the space with commission-free trading platforms.
One of the latest entrants is eToro, the global cross-asset investment platform that offers brokerage services and social trading.
Founded in 2007 in Israel, the company set up shop in Australia last year after growth surged in 2017 during the peak of the crypto bull market.
Shortly afterwards in March 2018, the company closed a $US100m ($147.2m) Series E funding round led by China Minsheng Financial.
As the latest entrant in Australia, the eToro platform is directly engaged with two key sector trends; the introduction of zero per cent brokerage commission, and the rise of social trading — a format which allows investors to pattern their trades after peers or experts.
Existing players tied to the rise of social trading include Stocks in Play and Strawman — sites which offer investment suggestions and maintain ranked leaderboards of investors to follow.
eToro’s Australian managing director Robert Francis said the company was planning to base its domestic trading rollout around shares and cryptocurrency. Globally, he said eToro’s brokerage functionality offered exposure to around 15 stock exchanges.
But it’s been slow-going in the early stages, as the company awaits regulatory approval from ASIC for securities-brokerage services based around social trading.
When contacted by Stockhead for further details on the current state of the negotiations, a spokesperson for ASIC declined to comment.
Francis said the two sides remained in discussions, but for now eToro was in the process of securing a partnership arrangement that would give the company access to a domestic trading licence.
And by January, it hopes to introduce Australian investors to the benefits of a dual-service platform that offers both brokerage and a network of professional traders to follow.
Speaking with Stockhead, Francis discussed the process eToro uses to select so-called “copy” traders, of which there are now around 3,000 across the platform globally.
“You’ve got to demonstrate experience, so for starters we’re looking for a demonstrated track record of investment on our platform,” he said.
“Then once selected, you’re assessment is based not only on performance, but also the amount of funds in your account. We don’t approve traders who have generated an outsized return with a leverage trade, but are only trading small amounts.”
Professional investors on the platform are also given a risk profile based on the nature of their trading patterns. Clients also get access to a news feed and can communicate with traders they follow.
“Professional traders have a mutual interest to engage because they get paid by eToro for building a follower base,” Francis said. “So ultimately it’s about creating an environment for responsible investing with sustainable returns.”
He added that in addition to its trader network, eToro also created its own portfolios for investors to match and follow.
“The main focus will be on thematic portfolios, where eToro offers investments in different trends such as AI, fintech and cannabis,” Francis says.
“It’s not a new concept, but we’ve created it in a slightly different manner where portfolios are re-weighted on a monthly and quarterly basis depending on performance.”
Having been an early adopter of the social trading model, Francis said eToro’s broader strategy was to pivot towards a more diverse product offering as competition heated up in the brokerage space.
“My belief is that it’s a race to the bottom on fees, and eventually the platforms that provide the best service will move to a subscription model — unlimited trades for a monthly fee, for example,” Francis said.
“Ultimately, our intention is to move into other financial services such as debit cards, so customers can get simple access to their trading account.
“We’re not a bank, but we want to be a full-service investment company that gives clients flexibility and a broader product suite.”