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.

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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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Dan
Dan

This 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.

Greg
Greg

Dan, the whole report will be published on Brokerchooser in a couple of days.

Greg
Greg

Dan, the full report will be published on Brokerchooser in a couple of days.

Dan
Dan

I don’t want the report. I want the method. Both freetrade and t212 prices are wrong. You are not trustworthy.

Greg
Greg

Dan, 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?

Dan
Dan

Well, 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.

Greg
Greg

The 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?

Andy
Andy

Another 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.

Greg
Greg

Hi 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

Richard
Richard

Some 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 Weber
Richard Weber

AJ Bell is 0.25% pa, with max £7.50 per quarter, so for below £12,000, not £40,000.

Greg
Greg

Hi 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 »

Mike
Mike

Isn’t paying stamp duty the law?

Greg
Greg

Hi 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

Tajal
Tajal

so, ob what exchange is the order relayed to? sounds to me like cfd without the leverage

Greg
Greg

Tajal, we’ve analyzed the fees and execution of real shares (not CFDs) at each broker

Robert
Robert

There 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.

Greg
Greg

Hi 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 »