AvaTrade is a global online trading company that specializes in the buying and selling of CFDs. In this guide, we’ll be taking a look at the AvaTrade business model answering the question; how does AvaTrade make money?
How AvaTrade Works
AvaTrade is a FinTech company that allows its traders to buy and sell various instruments such as stock indices, cryptocurrencies, forex and more.
AvaTrade users simply buy and sell contracts for difference (CFDs) on its online trading platform. A CFD refers to a contract between a trader and an online brokerage to trade on the difference between the opening and closing price.
In a scenario where the closing price is higher than the opening price, the seller of the contract (AvaTrade in this case) will have to pay the buyer the difference, which turns out to be his profit. Similarly, if the closing price is lower, the buyer (trader) will have to pay the seller the difference.
All online brokerages including AvaTrade are required by law to disclose the riskiness of trading CFDs with them. This is because CFDs are very risky financial products as they are majorly based on speculations.
AvaTrade offers CFDs on over 250 financial instruments, including Exchange-traded funds (ETFs), forex, indices, bonds, shares, cryptocurrencies and more. Besides, AvaTrade provides its users with variety of features that help their trading efforts.
AvaTrade can be accessed using their mobile apps (for both android and iOS devices) or by visiting its website.
Still consfused about the AvaTrade opening and closing positions, below is a clear explanation from AvaTrade folks:
The AvaTrade Business Model
While AvaTrade started as forex trading company, Ava FX, it has become much more. More financial instruments have been adapted into the company including the cryptocurrencies and stock indices.
As a result, AvaTrade has monetized all its assets in various ways. Let’s take a look at some of the major ways they have used below.
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How Does AvaTrade Make Money
AvaTrade makes money via overnight fees, spreads, inactivity fees and from its currency conversion fees.
Let’s take an in-depth at each of these
AvaTrade major source of revenue comes from the spread that it applies to its users’ trades.
A spread refers to the difference between the sell price (bid) and buy price (ask) for a given financial asset a customer trades in. For example, if a user buys a Contract for Differences, CFD share for $50, then AvaTrade may end up charging the user $50.1. The difference, $0.1, is where AvaTrade turns a profit.
The spreads prices are derived from exchanges and different third-party market data providers by AvaTrade itself.
Whenever a user lose money on a trade, AvaTrade turns a profit. For instance, a trader may purchase a CFD speculating that the price of Apple shares will rise. If instead the price falls, the trader will have to pay the difference between the opening and the closing price of their position.
Similarly, if a trader’s speculation is correct, AvaTrade will have to compensate the trader. This happens for few traders whereas majority of traders lose money which in return turns to profit for AvaTrade.
Overnight fee is the amount paid by a trader if he or she hold a CFD positions overnight. AvaTrade overnight fees are available for both short and long positions on stock indices at a -0.0058% daily swap rate.
The overnight fee is paid by a user is not always constant as it depends on many variables such as the day’s closing rate, trade’s size and more factors. For instance, users who hold a position over the weekend will pay a three-day swap fee that is applied on Wednesdays.
Currency conversion Fees
Currency conversion fee are the other charges that AvaTrade applies to all its users. The charges apply whenever an AvaTrade user trades in a currency different from the one registered in their accounts.
All AvaTrade conversion fees are dependent on the prevailing market exchange rates. AvaTrade support about 5 currencies meaning conversion fees are also charged when making deposit from an unsupported currency.
AvaTrade applies an inactivity fee up to $50 to all users who haven’t logged into their accounts for the past three months. If a user is inactive for 12 consecutive months, AvaTrade charges an administration fee of $100.
AvaTrade Funding, Revenue, Valuation and Potential IPOs
Unlike its competitors, AvaTrade financial information is not listed on crunchbase. The money raised through investors has not been disclosed.
There is a possibility of AvaTrade going public on the London Stock Exchange (LSE). The IPO is valued about $1 billion which is likely to happen before the end of 2021.
According to Owler, AvaTrade rvenue is estimated to be $76 million. Due to inadequate funding rounds data, AvaTrade can only be valued on the basis of its IPO where the valuation is estimated to be around $1 billion.
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AvaTrade company history
AvaTrade, headquartered in Dublin, Ireland was founded in 2006 by Clal Financce Ltd, Negev Nosatzki, Emanue Kronitz as forex firm (Ava FX).
With time, the company started incorporating other financial assets and by 2013 it was recognized as a multi-asset brokerage and changed its name to AvaTrade.
AvaTrade has been carrying out acquisition of other brokerage firms. Artco was acquired in July 2010 and 2 years later in March 2011, AvaTrade acquired eForex broker non-American customers. In mid-2011, the company acquired the goods of clients as well as the clients outside the EU form the Finotech Trading UK Limited.
AvaTrade has over 300,000 registered traders in over 150 countries who make over 2 million trades monthly. The trading volumes reports are over $70 billion every month.
Today, AvaTrade has employed over 400 people who operates offices and sales centers in different locations such as Sydney (Australia), Milan (Italy) and Spain.
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