Here is how Freetrade compares to my other investments. XIRR is not directly comparable due to different products held:
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What is Freetrade?
Freetrade began in 2018 and promised to shake up the the share dealing market. At this time, the thought of a free share trade was unbelievable given that it could cost up to £15. But online services had been nibbling at this for some time. Companies such as Trading212 and also banks such as Fineco were also cutting their costs. Freetrade was a little different in that it operates only by app. It is not possible to look at your account in an internet browser. Combined with one-click trading and no commissions, this has made trading extremely fast and accessible to the mass market.
The service has grown extremely quickly, with the zero commission and low minimum orders. Since opening they have accumulated over 200,000 users. There is also an active community.
Since opening, Freetrade do not have a monopoly on free stock trades. EToro now offer commission-free share dealing. It would not be a surprise to see others follow into this space. Robinhood in the US is a massive platform that operates along the same lines as Freetrade. A UK launch was scheduled for this year but has been pushed back, and it remains to be seen if it will ever open.
Is Freetrade profitable?
Freetrade is not profitable, although this is not surprising given the early stage of the company. The last filed accounts were filed on 22 June 2020 and cover the period to 30 September 2019. Freetrade lost a total of £3.884m with only £86,000 in revenues. This was financed by the issuing of shares. The last raise this year (which does not feature in those accounts) was on Crowdcube and raised over £7m. This put the valuation of the company at £140m.
It appears that funding should not be a problem for the immediate future, and the sky really is the limit if it can become successful. The last round of funding for Robinhood saw its valuation rise to $11.2bn and looks set for IPO at a much larger valuation.
Freetrade Review: Operating Model
Signing up for Freetrade is easy. Because it is an app-based product, the only way to do this is to download the app (Android/iOS) and start there. From there, you can link your bank account or upload money into your account using card.
All users get the basic account, which is free. The interface is extremely spartan. You can see your portfolio value and also a basic breakdown of shares owned. The ‘discover’ button allows you to see what shares are eligible for trading on the Freetrade platform. It offers a limited number of shares and ETFs, but more are being added all the time. Alternatively, you can search by the ticker code or company name to see if they are there. The list of stocks and ETFs is growing all the time. A general rule is the larger the company, the more likely it will be on Freetrade. If you are looking for illiquid AIM stocks you are likely to be disappointed.
Clicking a share name brings up the dealing screen. There is no information here at all aside from a brief share price chart, the current buy price and a brief description. Unlike other platforms where you get other information like financial statements and the latest RNS news, it is assumed you have done your homework here. Further, there are no other choices apart from to accept the price or leave it. Placing limit orders or stop losses is not possible.
Trades are genuinely commission-free and execute immediately. You can still incur other costs though. Stamp duty is payable on some shares, for instance. For shares bought or sold in other markets which require a currency conversion, Freetrade charge you spot rate plus 0.45%.
There are now some additional extras on the Freetrade platform which are chargeable. You can hold your purchases within an ISA on Freetrade, although this attracts a £3 per month fee. Another new feature is Freetrade Plus. This costs a £9.99 subscription fee per month and gives advanced features such as the ability to place limit and stop orders.
Is there a sign-up offer?
The sign-up offer relies a bit on luck. You can get a free share when you join. The value of this share will be between £3 or £200, so could be a good deal if you manage to blag a good one.
Click here to get a link to the app.
How are funds protected?
Freetrade’s mechanisms for protecting funds are much in line with others in the industry. Client funds and assets are segregated and cannot be used to pay business expenses. In the event of platform failure, this separate holding should see the safe return of funds (minus administrator costs). Freetrade also benefit from FSCS protection which protects amounts of up to £85,000.
Freetrade Review: Pros
The app is slick and not complex to understand. Purchasing of shares is straightforward and instant. Checking on your investments is quite suitable on this interface. The platform is suitable for beginners as your maximum loss is restricted to what you put in.
Trades are genuinely commission free. This makes it possible for people to invest in the stock market with much smaller amounts as their gains will not be eaten by fees.
The site attracts a lot of users, and there is a fledgling community to interact with other users.
For now, the business is growing quickly and appears to be well-funded. This reduces counter-party risk.
Freetrade Review: Cons
The app is light on additional information about the individual shares, which may lead to users over-trading or buying without doing proper research. Both of these are likely to reduce returns in the long run.
The amount of products available on the platform is much lower than others. For products such as ETFs you may find a better one that suits your requirements elsewhere.
The premium features such as ISA, stop losses and limit orders come for free on other platforms. Depending on your frequency and size of trading, this may not offer great value.
Despite being a rapidly growing company the company pales in size to listed giants such as IGIndex or Hargreaves Landsdown, and users may have more confidence in leaving large sums of cash at these places.
Freetrade Review Conclusion
A commission free app for stock dealing was well overdue, and Freetrade certainly hits the spot. It is easy to download and carries many of the well-known stocks and ETFs. It is most suitable for beginners, as the low fees mean it is possible to have very small holdings of shares. However, it is lightweight in other aspects, particularly in regard to learning more about the individual stocks. For advanced users it is a handy platform to have, but probably will not be the main platform.
Disclaimer: This IGIndex review represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Any advertised returns are not guaranteed, and you could your money deposited.