eToro, the forex broker startup, has announced that it raised $2.4 million from Social Leverage in investors capital. This brings the total funding of the company to more than $10 million. eToro is one of the only brokerage ‘startups’ per-se as it was founded as a start-up, with institutional investors, and it relies on proprietary technology – its own platform and customized development. Most other brokerages were founded by private investors who bought existing software and small number of them, such as Oanda, Interbank FX and Gain, received investments from institutional investors a few years after the inception when their business model was proven and their finances sound.
eToro is looking to target a different segment of the market than all other brokerages – the gaming/trading segment. With its flashy and intuitive GUI and gaming-like charts and transactions it attracts mostly novice traders or traders crossing from the gaming market. It doesn’t however appeal to intermediate or advanced traders. This, in my opinion, is a major problem for the company as the costs of player’s acquisition (marketing costs) are only going up, eToro’s player value (the potential amount of profit to the broker from a given trader) are relatively low and can be as low as $50. With a costly development and large staff to maintain this may require the company to consider some of its business models.
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According to the company its traders have traded over $100 billion on eToro to date. The average transaction size, before leverage, is $50. The company, which has 1.5 million registered users, has 120 employees in Israel, New York, Australia and Cyprus.