Fintech/Analysis/ UK trading apps up to 20x cheaper than incumbents An independent review has shown that "wealthtechs" offer starkly cheaper trading than their older peers. A price war is now inevitable, but can the newcomers manage their costs? By Isabel Woodford 6 February 2020 \Venture Capital 13 European Web3 startups to watch By Sophie Zhang 30 June 2022 Member Fintech/Analysis/ UK trading apps up to 20x cheaper than incumbents An independent review has shown that "wealthtechs" offer starkly cheaper trading than their older peers. A price war is now inevitable, but can the newcomers manage their costs? By Isabel Woodford 6 February 2020 Stock trading in Europe is still an acquired taste; just a third of Europeans invest in public companies, versus half of Americans. But there’s growing interest in the space from both investors and entrepreneurs alike, with the new dawn of “wealthtech” companies globally raising $761m in the third quarter of last year. And already these wealthtechs are fundamentally changing the landscape, disrupting the old guard of traditional brokers. According to a new independent review, the new wave of UK trading apps are up to 20 times cheaper than the four largest traditional trading platforms. Sifted commissioned Brokerchooser, Hungary-based stockbroker analytics group, to compare stock trading costs, testing the hypothesis that cheaper “wealthtechs” will force a price war in a bid to bring trading to the masses. Brokerchooser’s analysis compared four leading fintech apps — eToro, Freetrade, Revolut and Trading 212 — with the four main incumbents — AJ Bell Youinvest, Hargreaves Lansdown, Interactive Brokers and Interactive Investors. The wealthtech newcomers. Using an original script, they were able to execute the same trades simultaneously on the eight trading platforms, revealing a stark price difference when buying and selling UK and US shares as a British retail client. [Read the full methodology here] “The best execution prices are usually very close to each other. Based on this it seems you don’t get a compromised execution if you open an account with a newcomer, although you pay far less for it,” the report concluded. They added that the main drivers of varying trading fees stemmed from commission and – in the case of US trading, currency-conversion fees. A breakdown of the fees on a bulk UK trade (buy and sell), using Lloyds Bank shares as an example. eToro doesn’t charge stamp duty, making their UK trading very competitive. Revolut doesn’t trade UK shares, so isn’t eligible here. The same experiment but on US stock Snap (the company behind SnapChat). Note, the consistency in spread costs is due to automated price-matching, Brokerchooser explained. The newcomer price war The study also revealed fairly considerable trading cost differences between the newcomers themselves, when accounting for stamp duty. EToro emerged 10x cheaper than its nearest peers — Freetrade* and Trading 212 — for both UK and US shares (users only pay the spread cost). Revolut is also competitive for US trading. Nonetheless, it’s worth noting that eToro does come with a minimum £10 deposit and withdrawal fees, and is therefore less suitable for short-term traders. It also has varying trader protection licenses in place outside the UK. Furthermore, eToro only has a 2.8 on Trustpilot, while Freetrade sits comfortably with a 4.7 rating. Also, as outlined in the Financial Times’ Alphaville, cheap trading is often used to lure users to other (more lucrative) products and over-extending their bets. However, despite rumours about hidden costs and inflated spreads, Brokerchooser found no evidence of the newcomers concealing the price of trading on their “freemium” platforms. The exception to this was a lack of transparency around conversion fees in the case of Freetrade for US trading. That made Freetrade up to 10x more expensive for US trading than its peers. It’s also worth noting that Robinhood, the US zero-commission trading unicorn, is also planning to enter the fray in Europe later this year, having announced its UK launch. They will only offer US shares to begin with, catering firstly to experienced traders by offering debt to fund their purchases. In the US they have amassed 10m users. Moreover, aside from live stock-trading, there are a growing number of long-term investment fintechs in the UK like Moneybox, Plum, and Tickr, which offer “baskets” to invest in rather than individual shares. Client competition UK wealthtechs are already eating up a large segment of the trading population, with their client numbers exceeding the incumbents (who have typically catered to a handful of high-net-worth individuals with large trading volumes). Number of UK-based accounts/clients by company. Source: Brokerchooser. (N.B. eToro’s userbase is global. It does not disclose the number of active users it has in the UK alone.) The table shows wealthtechs are catching up with their longstanding UK peers. If the incumbents start to feel a squeeze on their customer base. they are likely to bring their prices down to match the newcomers, which is what occurred in the US when Robinhood took over. However, this could be a mixed blessing for the wealthtechs, whose main pull is their pricing (and their millennial-geared digital interface). If incumbents start to play their “zero-commission” pricing game, it’s unclear if all four will survive given their smaller margins. Stilll, Freetrade chief executive Adam Dodds explained in a blog post that the company can cut costs by building their own brokerage tech solution. They are also hoping that by largely targeting first-timers and by expanding beyond the UK, their customer base will swell to far greater numbers than the incumbents have seen to date. * This is when made paying the £1 premium charge for immediate execution on Freetrade. However, the broker says it encourages long-term trading and has the fee to discourage day-trading. Still, if you don’t pay the £1 and wait until the end of the day, that can be costly on larger trades if the price increases even marginally before the trade closes. 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Here’s what you need to know about it 23 Join the conversation Subscribe newest oldest Notify of new follow-up comments new replies to my comments Legal Case Management SoftwareThanks for useful information Roman GaufmanThis is really useful, I am using Revolut at the moment but a lack of a desktop/browser option is very limiting. It also doesn’t have ETFs. Freetrade and others like Stake don’t have a browser version in the UK either. I’m currently on the waiting list for Trading 212 and leaning towards Interactive Brokers for the powerful desktop app. How does someone like Degiro compare? RobertThere are many errors in this report. Trading 212 has no currency conversion fee. It is only by inserting this false information that eToro can seem to be best for trading Snap. GregHi Robert, thanks for your comment. You can only have a single currency account at both Trading212 and eToro. This means you can hold your cash at your account only in one currency. At Trading212 the research calculated with the GBP account since the whole research was carried out from the perspective of a UK investor. In the case of eToro, we had to choose a USD account since they don’t provide accounts in other currencies. When you trade the US market with a GBP account or the UK market with a USD account you have to take into account… Read more »Isabel WoodfordRead the full methodology here https://brokerchooser.com/free-trading-apps-vs-incumbent-online-brokers DanThis is called cherry-picking. Can you publish the method that you used to perform these tests so we can reproduce them? They seem bogus and I prefer to not trust an article with such unverified numbers. GregDan, the whole report will be published on Brokerchooser in a couple of days. GregDan, the full report will be published on Brokerchooser in a couple of days. DanI don’t want the report. I want the method. Both freetrade and t212 prices are wrong. You are not trustworthy. GregDan, the report will include the methodology as well, stay tuned. Also, I would appreciate having a fact-based conversation with you. Comments like “prices are wrong” have nothing to do with the facts. So please come up with some facts. What is wrong exactly? Isabel WoodfordRead the full methodology here:https://brokerchooser.com/free-trading-apps-vs-incumbent-online-brokers DanWell, let’s cut the bullshit 😉 It’s obviously a rigged and paid-for report (by eToro). No one in their right mind would put those 4 brokers against each other. No one considers etoro for a legit equity broker. GregThe research is fully independent, nobody paid for it anything, that’s for sure. Which newcomers would you include into the comparison instead of these four? DannyHi Greg, I can see that the research is fully independent and I must agree to disagree with Dan as I think you made great service to people to show how much they pay for stock trade comparing newcomers with old school brokers. However IMHO Etoro is not good for UK residents as it lacks ISA and SIPP tax wrappers. As Etoro offers accounts only in USD this will not be possible also in the future as according HMRC ISA and SIPP must be hold in GBP accounts. Not paying tax on investment profit in UK can largely exceed savings… Read more »RichardSome fees look wrong to me. AJ Bell custody fee is 0.25% pa below £40,000 of stocks, not 0.10%. Interactive Investor has a currency conversion fee of `1.5%, not 0. Richard WeberAJ Bell is 0.25% pa, with max £7.50 per quarter, so for below £12,000, not £40,000. GregHi Richard, Thanks for your comment, I really appreciate it. You’re right, the custody fee is 0.25% at AJ Bell per year. In our trading scenario, we calculated the custody fee for one week of a GBP 2,000 position which is GBP 0.10 (not %). In the case of the US trades, we didn’t calculate with currency conversion cost at brokers where you can have a multi-currency account. This means you can hold different currencies (cash) on the same account at the same time. Interactive Investor and Interactive Brokers provide this kind of account, so their currency conversion fee is… Read more »AndyAnother article that may very well be paid by etoro. What they offer is cfds, and that is why no stamp duty. also, they have plenty of financing charges. and they profit from running A/B book, thus for most clients your loss is their gain. So think again. GregHi Andy, Thanks for your comment. At eToro you can also trade with cash (real) equities (beyond CFDs) and the stamp duty is not charged. I hope this helps. Best, Greg MikeIsn’t paying stamp duty the law? GregHi Mike, thanks for your question. Yes, you’re right, stamp duty is charged by the government. However, the broker can decide to pay it instead of you. I hope this helps. Kind regards, Greg from BrokerChooser Tajalso, ob what exchange is the order relayed to? sounds to me like cfd without the leverage GregTajal, we’ve analyzed the fees and execution of real shares (not CFDs) at each broker
European fintech weekly: Wealthtech wars — and why the UK is the next battleground By Isabel Woodford Click here to read more
Big companies need an “ambidextrous” approach to innovation By Charles O'Reilly Click here to read more
Europe is beating the US in fintech innovation, says Revolut’s Nikolay Storonsky By Michael Stothard Click here to read more