EToro, an Israel-based digital trading platform with global operations, gave its users very few hours notice that the digital platform’s margin trading services would be put on hold on Friday.
The users were instructed to raise their margin collateral to 100% in an email sent on Jan. 8. Clients with available balance could keep the positions open by adding funds, while those that don’t have available credits had the option to close other parts to free up funds. By 9:00 PM, the platform halted any European crypto trader contracts that didn’t bolster their margin collateral to 100%.
Soon after the order, bitcoin approached an all-time high of $41,962 on Friday, after more than tripling in 2020. The world’s leading cryptocurrency went in reverse during the weekend, dropping almost a quarter of its value, and traded at $34,184 on Monday, according to data from thedailychain.
EToro Violated Contracts
The move by eToro shows price swings with little or no catalyst can ambush investors and brokerages that cater to them. With margin trading, as an asset’s value increases, investors can increase their leverage and expose themselves and the brokerage to losses in the case of a rapid pullback in prices.
The online brokerage said it had seen a frenzy of cryptocurrency activity in recent weeks. It added about 200,000 new registered users in the first week of the year, during which its platform saw several days of cryptocurrency trading volumes shot up.
The users’ crypto was immediately converted into U.S. dollars when the firm called in the margin trades.
Disgruntled traders took to Twitter, complaining that eToro closed all leveraged positions on cryptocurrencies four hours later, including those that users had attempted to keep open.
Slavko Vesenjak, an attorney in Slovenia, said that eToro violated the contracts it had agreed with its clients. He added that the four-hour notice before locking all leveraged crypto positions made users wake up in their separate time zones seeing their jobs closed.
Effects in Future
Global head of PR for eToro, Amy Butler, said that most eToro’s customers were unstirred by the changes.
Fordham University law professor, Jurij Toplak, warned eToro users that there’s a lot of future loss for the users if Bitcoin rises to $70,000 now. The users have no way of getting this money.
EToro users seeking to short the markets at their top would have missed out on significant profit opportunities.
Some traders have emphasized the potential consequences of eToro’s short-notice decision. Twitter user Phill Gallagher claimed to have received the email on margin trading at about 2:30 AM local time. He said it was very unprofessional of eToro, which creates a significant tax issue, which could have been managed with a little notice. He added that he would now find a new trading platform.