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.
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.
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.
Article credit to: https://the7circles.uk/trading-212/