Freetrade, the UK commission-free stock trading service, is expanding into other European countries in the latest shake-up of the investment market by app-based brokerages.
The Netherlands and Ireland are the first countries selected by Freetrade for a wider European rollout of its low-cost trading platform, following its 2018 launch in the UK.
App-based services such as Freetrade, Revolut and the US-based Robinhood have disrupted the traditional investment market, which charges fees for customers to buy and sell shares. Investment platforms such as Hargreaves Lansdown, AJ Bell and Interactive Investor can charge more than £10 per trade.
Adam Dodds, Freetrade chief executive and co-founder, said the expansion was a European “land grab” in a rapidly shifting industry. “We want to be the first ones to offer a customised, localised investment version.”
Freetrade will take on a small number of customers from Thursday to test the service in both countries, initially offering access only to its range of UK investments. The company plans to roll out investment products tailored to local European markets in the coming months, which it said will include Irish-listed companies in Ireland, and the Amsterdam Stock Exchange in the Netherlands.
With a customer base of just over 90,000, it is one of the UK’s biggest commission-free trading services, and appeals to younger investors, with an average age of 30 among its clients.
Freetrade declined to disclose trading volumes on its platform. An initial investment by a customer on the platform averages £100, according to the company.
Despite the name, fee-free trading is not cost-free. Customers can choose a fee-free general investment account in which their trades are conducted in bulk with all other customers at 4pm each day, or pay £1 a trade to deal instantly. The company charges £3 a month for those wanting to hold their investments in a tax-friendly Individual Savings Account (Isa).
Freetrade has a relatively limited field of investments available to its clients, with 620 investment options for UK customers, from US and UK stocks to exchange traded funds and real estate investment trusts. This compares with the thousands of products on offer at established investment platforms such as Hargreaves Lansdown.
The low fee model for financial services companies — adopted by robo advisers as well as online brokerage platforms — has also attracted scrutiny in recent months. Moola, a UK robo advice firm which turned over less than £900 in the past year as it spent £1.3m, said last week it was closing at the end of February.
Low-fee investment platforms need to scale rapidly and acquire new customers in order to stay viable, raising their costs of marketing. Graham Bentley, managing director of investment marketing consultancy gbi2, said: “You need a high volume of users to make any dent in the market at all.”
Freetrade sees opening up new European markets as critical to building market share. “Europe is essential to our growth plan,” said Viktor Nebehaj, Freetrade co-founder.
Anthony Morrow, chief executive at OpenMoney, a financial advice service, said: “Moving into Europe not only brings with it a much larger market to target, but also a market that will have more existing and experienced investors to target.”
Freetrade said it chose the Netherlands and Ireland because of the markets’ high proportion of English speakers and openness to new products. It plans subsequent launches in Germany and France.
More competition is expected in Freetrade’s home market. Robinhood, the Silicon Valley company offering cryptocurrency trading that has raised more than $912m since its 2013 launch, has announced plans to enter the UK market in early 2020. The broker’s UK website this week indicated 54,000 people had currently signed up on its waiting list.
Experts added that Freetrade would need to take care in its new target markets. Mr Bentley said: “The investor population in Europe is different than in the UK. It has less of a propensity for equities. The margins for Freetrade could be different than what they’re used to in the UK.”
“It’s going to be a battle in the next few years over the whole of Europe,” said Nick Bartot, founder of Bux, a Netherlands-based commission-free investment platform.
“But to be successful in Europe you need a system that allows you to adapt to new countries very quickly. It’s a question of whether UK and US companies realise that.”