eToro investor protections

[Blown2CV]

I note that GBP fiat/cash held in eToro is covered by FSCS but investments are not. I can however see that eToro offers 'if we go bust' insurance up to similar sorts of levels, as standard for customers with investment totals over i think £5k.

Is this sort of thing reliable and trustworthy? Have their been instances with other investment firms where this has been needed and invoked to protect customers' asset values?

Partly the reason I ask is I note also that eToro announced with great fanfare that it had totally vibe coded from scratch a new platform and app and were proposing that it was a great success... but my experience is that it is full of bugs, so I am concerned that some of those bugs might extend into the actual asset handling functionality... and what that means for user sentiment and trust and therefore the future of the company.

[DonkeyApple]

Blown2CV said:

I note that GBP fiat/cash held in eToro is covered by FSCS but investments are not. I can however see that eToro offers 'if we go bust' insurance up to similar sorts of levels, as standard for customers with investment totals over i think £5k.

Is this sort of thing reliable and trustworthy? Have their been instances with other investment firms where this has been needed and invoked to protect customers' asset values?

Partly the reason I ask is I note also that eToro announced with great fanfare that it had totally vibe coded from scratch a new platform and app and were proposing that it was a great success... but my experience is that it is full of bugs, so I am concerned that some of those bugs might extend into the actual asset handling functionality... and what that means for user sentiment and trust and therefore the future of the company.

No. The whole MMF thing is the next minibond collapse. The overt clue is that the regulator wants nothing to do with covering them.

For all you know a bookie's in house MMF may be a leveraged holding of junk bonds that won't survive first contact with any kind of debt sell off. You can't margin the end client who is supplying the deposit for the bet. The fund would just be liquidated by the entity supplying the leverage before that client margin was all lost.

[Blown2CV]

OK so what specifically is viewed as being wrong with eToro that the regulator won't touch them as you say? I mean not being based in the UK is one thing but what else are they doing that's not sensible?

secondly what is a better choice then for UK based individuals to engage with investments but with viable protections?

cheers

[DonkeyApple]

Blown2CV said:

OK so what specifically is viewed as being wrong with eToro that the regulator won't touch them as you say? I mean not being based in the UK is one thing but what else are they doing that's not sensible?

secondly what is a better choice then for UK based individuals to engage with investments but with viable protections?

cheers

The main activities of etoro come under the FSCS bit what everyone needs to do is learn what exactly a MMF is and why they wouldn't be covered when offered by a bookie for example.

[Condi]

Investments will be in segregated bank accounts and while not "protected" will not be accessible to the company for their own funding.

If eToro goes under your investments will/should continue to exist.

[DonkeyApple]

Condi said:

Investments will be in segregated bank accounts and while not "protected" will not be accessible to the company for their own funding.

If eToro goes under your investments will/should continue to exist.

This isn't what this particular question is regarding. That aside, the segregation isn't client funded segregation utilising a third party banking license which is what you are describing and what a trading firm would like you to accidentally think. . It just means that it is a pooled account of all non professional funds and there are scenarios where they can and do get bailed in.

What this specific question is regarding is MMF funds which these bookies try to sell as if they're normal bank deposits when they're nothing of the sort and the denial of access to the FSCS should tell a potential customer everything that they need to know.

The service is 100% capital at risk for zero risk premium. In other words it is a bag o'ste.

Another clue is that the bookie will rush to tell punters that have never heard of MMFs that they're used by legitimate institutions so must be kosher. What they don't rush to explain is that an MMF is just a wrapper and one may contain nothing more than 2 yr treasuries and physical gold while another might be holding nothing but rust belt junk bonds geared 3X and destined to implode via margin call as soon as the first squeeze on the debt markets next appears.

And these MMF investments are not segregated from anything nor anyone. No one would even know if the MMF were empty and all the client funds had long since been routed to third party offshore accounts.

[Blown2CV]

i don't really understand much of this. The money i have invested in eToro in copy trading has been used to structure a portfolio, so i do own shares in various companies. If eToro did go bust, whilst i may not lose ownership do i lose access? Presumably my share certificates exist somewhere, but where? I'm not sure eToro are hiding what they are, but if they are a trading platform then how can some be good and some be evil...

[WTRacer]

Blown2CV said:

i don't really understand much of this. The money i have invested in eToro in copy trading has been used to structure a portfolio, so i do own shares in various companies. If eToro did go bust, whilst i may not lose ownership do i lose access? Presumably my share certificates exist somewhere, but where? I'm not sure eToro are hiding what they are, but if they are a trading platform then how can some be good and some be evil...

Share certs? Errr, nope. In fact you don't even 'own' the shares in the way you probably think you do and certainly not in the way we used to, say 30 ish years ago. Almost all shares, in most countries, are held on a nomineee basis and you are now classed as a "beneficial owner". In most practical senses you do indeed own the shares. Except when you do not.

Might want to take a look at the work of David Webb (former hedge fund manager and activist) for some details. The legal owner of shares these days is the entity that controls the security (not you) Mostly fine when things going well. When they do not, well.....you should do some research to at least know what you do or not have entitlement to.

[DonkeyApple]

Blown2CV said:

i don't really understand much of this. The money i have invested in eToro in copy trading has been used to structure a portfolio, so i do own shares in various companies. If eToro did go bust, whilst i may not lose ownership do i lose access? Presumably my share certificates exist somewhere, but where? I'm not sure eToro are hiding what they are, but if they are a trading platform then how can some be good and some be evil...

What are you copy trading though? Do they offer copy on physical shares or still just OTCs? If the latter then you just hold contracts with etoro and there are no physical holdings.

Their OTC operations have to be covered covered by the FSCS for them to be able to offer them to UK traders, it's usually just the MMF and crypto stuff that isn't for obvious reasons.

At the end of the day they're mainly a bookmaker and flow vendor rather than being a stockbroker.

[Blown2CV]

Having done some digging with the help of perplexity, it seems in a share buy trade I would also then own an identical amount of the same share. The shares are held in custody by eToro and if then go bust I don’t lose that. If the copied trader places a leveraged long position or a short position then these end up as CFDs.

[Blown2CV]

Having done some digging with the help of perplexity, it seems in a share buy trade I would also then own an identical amount of the same share. The shares are held in custody by eToro and if then go bust I don’t lose that. If the copied trader places a leveraged long position or a short position then these end up as CFDs.

[a311]

I think there are a few separate things getting mixed together here.

For investments, the main protection isn’t really the headline insurance figure, it’s that client assets should be segregated from eToro’s own assets. If eToro failed, your shares shouldn’t simply become part of the company’s estate. FSCS is more of a backstop if there is actually a shortfall.

The extra £1m insurance sounds reassuring, but I wouldn’t treat it as equivalent to £1m of FSCS protection. There are limits and exclusions, so I’d see it as an additional layer rather than the thing I was relying on.

The money market fund point is slightly different. If uninvested cash is swept into an MMF then yes, that isn’t the same as cash sitting in a bank deposit, but calling it “the next minibond collapse” or suggesting it could just be a leveraged junk bond fund seems a bit dramatic without showing what fund is actually being used and what it holds.

I’d also separate a buggy app from the underlying custody arrangements. A poor front end doesn’t inspire confidence, but it doesn’t automatically mean client assets are being handled badly.

Personally, if I had a substantial portfolio I’d care more about exactly which legal entity holds the assets, who the custodian is, how the client money arrangements work and what protection applies than the marketing headline around insurance.

If someone wants a more traditional UK platform, the obvious names would be things like AJ Bell, Hargreaves Lansdown, Fidelity or Vanguard, depending on what they want to invest in.

[DonkeyApple]

Blown2CV said:

Having done some digging with the help of perplexity, it seems in a share buy trade I would also then own an identical amount of the same share. The shares are held in custody by eToro and if then go bust I don t lose that. If the copied trader places a leveraged long position or a short position then these end up as CFDs.

Whether CFD (OTC) or physical equity, as a U.K. customer operating under their U.K. FCA license you should be completely covered by the FSCS as these are recognised instruments. If you convert your cash to MMF or trade any crypto then you won't be but you should get very clear warnings that your money is being moved out of protection.

To be honest, I don't think etoro offer true physical as I believe they don't levy the PTM on UK shares which would imply an unleveraged CFD is being used but that shouldn't be relevant to this.

[Blown2CV]

DonkeyApple said:

Blown2CV said:

Having done some digging with the help of perplexity, it seems in a share buy trade I would also then own an identical amount of the same share. The shares are held in custody by eToro and if then go bust I don t lose that. If the copied trader places a leveraged long position or a short position then these end up as CFDs.

Whether CFD (OTC) or physical equity, as a U.K. customer operating under their U.K. FCA license you should be completely covered by the FSCS as these are recognised instruments. If you convert your cash to MMF or trade any crypto then you won't be but you should get very clear warnings that your money is being moved out of protection.

To be honest, I don't think etoro offer true physical as I believe they don't levy the PTM on UK shares which would imply an unleveraged CFD is being used but that shouldn't be relevant to this.

i think maybe the thing to emphasise here is that companies like eToro are intended to make investing more accessible to 'non-pros' so clients aren't going to understand most of this, and the man on the street is not a professional investor. Whilst I am appreciative of your engagement in this thread, almost every word you've said has been like a foreign language to me. It's not that helpful to hypothesise about all the things it could be, using intense industry jargon. It's almost like you're trying to make me realise just how ignorant I am or how much expertise I am lacking. I was just really asking, what is it I need to know, how do companies like eToro do it, and how to I ensure I am optimally protected or at least not unduly exposed.

[DonkeyApple]

Blown2CV said:

i think maybe the thing to emphasise here is that companies like eToro are intended to make investing more accessible to 'non-pros' so clients aren't going to understand most of this, and the man on the street is not a professional investor. Whilst I am appreciative of your engagement in this thread, almost every word you've said has been like a foreign language to me. It's not that helpful to hypothesise about all the things it could be, using intense industry jargon. It's almost like you're trying to make me realise just how ignorant I am or how much expertise I am lacking. I was just really asking, what is it I need to know, how do companies like eToro do it, and how to I ensure I am optimally protected or at least not unduly exposed.

To be honest, not a single thing I've said should be jargon for someone lodging money with a bookie.

The smart thing to be asking is why does such a firm that specifically targets retail investors and makes its money through spread and client losses not be being as opaque as you are overtly highlighting they should be.

Why seek to blame me for trying to explain when it is very clearly the broker who has failed to make it 100% clear to you?

I can make it more simple:

All copy accounts will lose, the only variable is timing. Why is this the case? Because they all favour potential returns over risk and risk will always defeat them.

Your positions held in stocks that trade on a recognised exchange whether you hold them as physical (which you don't with etoro regardless of leverage) or as leveraged CFDs should be covered by the FSCS and this should be overtly clear in their terms as an FCS regulated entity. Any crypto or MMF almost certainly won't be because they're crap and the industry won't pay into the compensation pot to cover total loss.

If you want to convert your real money to MMF then you need to know what is in that MMF, what the leverage is and also why you'd want to put 100% of your capital at risk for such a meaningless return.

If you want to use your money to copy random strangers who will always lose then you need to actively trade those traders not ever think that they are somehow some form or legitimate investor who manages risk correctly.

A bookmaker makes money when clients lose, even if they're selling the flow to a clearing house who books those losses and pays a share back.

Retail brokers rely on their clients not bothering to understand how it works and instead believing the shiny shiny images of tremendous returns and everyone else partaking randomly knowing what they're doing.

The words that I have used are not jargon nor are they any attempt to belittle. I've done this job for over 25 years and know all the tricks and exactly how it works. Why? Because in the late 90s to early Noughties I was one of the people who built it and then had to watch it turn into what it has. . And at no time did I have anything to do with the book as it exists solely to transfer client funds to the balance sheet and my clients made money and I sleep at night.