Free Stock Trading. Here to Stay?

Another month, another Seedrs crowdfund for a free stock broking app.

Freetrade and Dabbl have been around a while, whilst BUX, fresh from purchasing Ayondo, their regulatory home, are launching their STOCKS app soon.

Revolut keep threatening to bring free stock trading to their large installed user base.  Trading 212 have been running their commission-free service alongside their CFD product, and eToro screens wall to wall ads asking you why you let someone have a bite of your doughnut.

Are free stock broking services destined to replace conventional commissioned brokers?

I think the wider commissioned based industry remains unconvinced as to the longevity of these offerings, and this essentially has to do with how they plan to make money.

Robinhood, the US broker rumoured to be hiring people in the UK are cited as the success story, the one whose valuation justifies everybody else’s crowdfund, and yet, it’s worth noting that a significant revenue channel enjoyed by the US firm is just not possible in the UK or Europe.

Bloomberg reports that Robinhood gets almost half its revenue from its relationships with firms such as Citidel and Two Sigma Securities. That is, these firms “buy” client’s trades from Robinhood.

This is not possible in Europe.

Costs for brokerages are very different in Europe.

Clearing the trade, even the minimum cost per trade, is expensive. Simply displaying a trading price needs paying for. Many of the incumbent commissioned stockbrokers make very little money from their execution only stock trading services, hoping that the client migrates to more premium services.

In fact it’s reasonable to conclude that the business models of those free services above all include some variant on a freemium model, where clients can uplift the service in return for payment.

Should you care how the firm plans to make money if you can enjoy commission free trading?

I think if you are dealing in small size, and require little value-added service the answer is probably not.


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It is, however, worth considering how your trade is executed. Most firm’s “Free” offer consists of aggregating all orders, and executing them all at once at some point of the day in order to split that minimum cost associated with trading on an exchange across multiple orders.

For your purchase of 100 shares, if that delay in the execution results in just a price 5 pence worse, it would have been worth paying up to 5 pounds to execute immediately.

It’s worth noting that Freetrade, for a quid allows you to trade immediately although I have no experience of the quality of execution here. But again here, with a 1000 shares purchase that execution only has to be 1 pence worse and you’d have been better paying up to £9 for a better fill……

If these commission-free providers can reach a critical mass and gain scale to push down their own costs, and improve execution, this kind of once a day aggregation will not be needed.

In fact with the authorisation to offer Fractional share ownership (allowing you to buy a tenth of an expensive apple share for example) announced by freetrade, it’s possible that they are nearly there…..

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