If you’re new to investing with brokers like eToro you may be a little confused and don’t know exactly what products you should be investing in (e.g. regular stocks with eToro or derivatives).
Don’t worry, you’re not the only one having trouble figuring it out, some financial instruments seem to be designed to confuse investors.
Let’s take a look at what you can invest in with eToro:
CFDs (Contracts for Difference)
Until a few years ago eToro only offered CFDs (Contracts for Difference). These are derivative products, meaning that you don’t buy an asset, but rather a piece of paper (contract) that references the price of the asset.
Forex CFDs with eToro
Trade CFDs with eToro
The advantages of CFDs are that:
You can trade with leverage, so you can trade for more money than you have available to you (beware that this carries more risk).
You can buy and sell more quickly as the broker (usually a market maker) acts as a counterparty and guarantees liquidity.
The commissions for buying CFDs are generally cheaper than what you would pay to buy the real asset.
They allow you to trade short, meaning that you can trade against an asset. For example, you believe that a company’s shares are overvalued and will go down and you want to capitalise on this situation (if the company’s share price goes down you will make money, if it goes up you will lose).
On the other hand, they also have some aspects that are not so encouraging, especially for beginners:
They are somewhat complex products to understand (e.g. short or leveraged trading), and this makes them unsuitable for most investors.
If you trade with leverage you will have to pay a financing fee (interest on the money the broker leaves you) if you have open positions after the market closes (called the overnight fee) and during the weekend.
The features of CFDs make them ideal for traders looking to open and close positions by following market trends, but be aware that this is somewhat complex if you don’t have a background in trading.
With eToro it is possible to trade CFDs on many products such as stocks (e.g. over 2,500 different stocks on almost 20 different markets such as the IBEX, NASDAQ or Zurich), currencies (e.g. EURUSD, EURGBP, GBPUSD, USDMXN, 49 in total), 13 indices such as the DJ30, IBEX 35, S&P 500 or NASDAQ 100 and commodities (31 in total) such as copper, gold, oil or sugar.
*67% of retail investors incur losses when trading CFDs with eToro. Please bear this in mind before investing in CFDs.
Interestingly, eToro also allows you to buy fractional real shares of companies. For example, it is possible to buy shares in companies such as Iberdrola, Tesla, Apple, Facebook or Santander. What’s more, eToro does not charge any commissions for investing in shares.
Stock Markets available with eToro
Trade real stocks with eToro’s broker
Please note that these real stocks are only available for long and unleveraged trading, otherwise you’d be trading the CFDs I mentioned above.
These shares offered by eToro are fractional, so you can buy bits and pieces of the share without having to buy the whole share. This also means that the share is registered in the name of eToro who internally assigns the share to you.