eToro informed users of the need to increase margin collateral by 100%; just four hours later, all non-compliant contracts were automatically shut down
A Wall Street Journal article reveals that eToro’s European customers were given just four hours‘ notice before the platform’s margin trading services were shut down.
On Jan. 8, in an email sent at 4:46 p.m., eToro users were informed that they needed to increase their margin collateral by 100 percent. The platform then closed the contracts of the European traders who did not increase this collateral at 21:00 on the same day.
In addition, when the platform closed margin trades, users‘ crypto funds were automatically converted to U.S. dollars. Amy Butler, a spokesperson for eToro, commented that „most traders were in profit“ at the close of the contracts, as Bitcoin’s price was around $42,000 at the time.
However, Jurij Toplak, a law professor at Fordham University, said that the platform’s decision could cause large losses for users:
„There is a big potential loss for users. We’re talking about future losses: if Bitcoin were to grow to $70,000, the user would have no way to get this money.“
Some traders have also pointed out the potential ramifications of eToro’s decision, and in particular the very short notice provided to users. On Twitter, user Phill Gallagher claims to have received the notification email at 2:30 a.m. local time:
„This creates a big tax problem, which with a little notice wouldn’t have been hard to handle. Very unprofessional. I will rely on another trading platform from now on.“
On the same day, eToro temporarily quadrupled its minimum deposit requirements, citing „unprecedented demand“ for its services from new users. In the first week of January, 200,000 new accounts joined the platform, sending daily volumes soaring to ten times the 2020 average:
„eToro has experienced unprecedented demand for our services from new users. To manage the demand and ensure that our community of 17 million registered users can continue to access our services without interruption, we have temporarily increased the minimum deposit for new users to $1,000.“
.@eToro has seen an unprecedented demand for our services from new users. To manage demand & ensure our existing community of 17M registered users can continue to access our services uninterrupted, we have temporarily increased the minimum deposit amount for new users to $1,000.
– eToroService (@eToroService) January 8, 2021
The community reacted negatively to the increase in the minimum deposit, pointing out that this decision will have a negative impact especially on novice traders. „I’m not sure this is a good idea,“ user evertmulder85 wrote on Twitter. „It’s a platform for beginners, its appeal is that it allows you to start with small amounts. $1,000 is not a small amount.“
According to some rumors, it seems that eToro is preparing to launch an Initial Public Offering in the second quarter of 2021: last year, the platform gained 5 million new users and „doubled its revenue to $500 million.“