Trading 212
Today’s post is about another low-cost stockbroker, Trading 212 – are they better than the UK’s incumbent, Freetrade?
Stake and Robinhood
A few weeks ago, we looked at low-cost stockbrokers Stake and Robinhood, both now in beta-test here in the UK, with full launches planned in a few months.
- We concluded that neither would dislodge the incumbent, Freetrade, which has been around for almost five years.
Stake’s free tier only includes two free trades per month.
- After that it’s $5 (£4) per trade, so Freetrade is cheaper at just three trades per month.
There’s no ISA, and the investment universe is limited to US stocks only.
The Unlimited tier costs $108 pa (£82.50 as I write).
- You would need to make 83 trades a year (7 a month) for Freetrade to cost more.
So this offer is clearly aimed at those who want to punt small amounts at the US market.
I had high hopes for Robinhood, which is very popular in the US.
- But they’ve ended up porting a sub-set of their US product to the UK, rather than building a UK specific offer.
The bits they have left out (options and ETFs) are the ones that were the most interesting to me.
Here are the key points:
- Completely free trades, which are instant rather than batched at 4pm
- US stocks only (plus ADRs listed in the US) – no ETFs, options, crypto or UK stocks
- No ISA
- All transactions in dollars – converted at the mid-market rate with no commissions
- Insured under the US scheme rather than the UK one – but with cover up to $500K (and they are “FCA-approved”.
- There’s a premium level (called Gold) – in the US this costs $5 a month and gives you margin trading, Level 2 data and research reports.
Robinhood does beat Freetrade for an actively-traded US stock portfolio, if you can put up with the money being held in the US, in dollars.
- This is a niche product, but I’ll give it a try when it launches.
Whilst researching Robinhood, I came across some positive write-ups for Trading 212.
- So let’s take a look at their offer.
But first, a reminder of what Freetrade does.
Freetrade
Freetrade was founded in 2015 by Adam Dodds and has regular crowd-funding rounds on Crowdcube.
- Freetrade has an FCA licence and joined the London Stock Exchange so as to be able to process its own orders in bulk.
Freetrade’s basic offer is a free trade as part of a 4pm bulk trade.
- If you want your own instant trade, that costs £1.
They also charge £3 per month for an ISA.
- Foreign trades (currently just US stocks plus some Asian companies listed as ADRs in New York) have an FX surcharge of 0.45% over the spot rate.
The “Freetrade securities universe” – which you can find here – has just over 600 securities:
- most are UK stocks, including a few dozen investment trusts
- more than 100 are US stocks
- 50 or so are UK ETFs
- and a few are 10 of these are ADRs of non-US stocks listed in the US.
- the obvious omissions are European stocks and AIM stocks.
So this won’t work as the main account for a UK stock investor.
- You can use it for a simple ETF (and/or IT) portfolio, or for a small side portfolio of US stocks.
The ISA costs £36 a year, so assuming you go for the £1 trades, you would be ahead of iWeb (the cheapest ISA) after 10 trades.
- But the limited UK stocklist means that it’s not really suitable for a trading ISA.
And if you buy and hold, you need a large portfolio in order to be able to shrug off the extra £36 a year going forward.
- ISA transfers are now supported, I understand, so you could transfer this money in if you are prepared to risk it.
I ended up using Freetrade for a small global ETF portfolio using trend following, and I’m happy with the service to date.
Trading 212
Trading 212 is not a platform that has been marketed to me, something that I find slightly worrying
- I frequent a lot of investing websites (albeit sometimes with ad-blockers) and subscribe to a lot of relevant newsletters.
But it has never been mentioned outside of Reddit.
- So my prejudice is that is must be from the spivvy end of investing.
But Trading 212’s supporters on Reddit say they are shouted out by Freetrade cheerleaders who invested in the latter firm’s crowdfunding rounds.
The Trading 212 website has a handy table comparing the features of the service against its rivals:
-
- there are unlimited free instant trades
- UK and US markets (plus some European ones)
- 2,500 stocks in total
- no FX fees
- fractional shares (so targeting small pots)
- limit orders and stop losses
- card deposits
- and a website application (not just a phone app)
Which all sounds very good.
There is also an ISA (free) and a CFD account, neither of which I am interested in personally.
For me, the key issue is protection.
Trading 212 are FCA-regulated and offer the full £85K FSCS compensation.
The small print mentions that they are owned by Bulgarian parent, which will bother some people.
- But they now style themselves as a London-based fintech firm.
The website has links to press coverage from fairly reputable sources (FT, Telegraph, Independent).
Here’s what I found:
- Trading 212 was founded in Bulgaria in 2003
- They have 160 staff, most of whom are developers in Sofia
- They switched to London after they got regulatory approval in 2014
- They introduced commission-free trading in 2018
Their business model appears to be to replace diminishing profits from ever-more highly regulated CFDs by building a large client base through free trading.
- These clients will then be offered chargeable add-ons (such as robo-advice) at a later date.
Conclusions
Trading 212 sounds too good to be true.
- They are cheaper than DeGiro (effectively free) but with the full FSCS compensation.
I think I will open a small account and try them out for myself.
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Mike Rawson
Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 35 years, with some success.
Article credit to: https://the7circles.uk/trading-212/