Here are some alternatives to Degiro. The performance is not comparable as most of these investments have been of discretionary purchases of equities.
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What is Degiro?
Degiro is a platform that few people have heard of in the UK. This is because they are a relatively new company, being formed in 2008 and only offering retail services in 2013. In the past few years they have significantly stepped up their marketing efforts and a new platform was released in the UK in 2015.
Degiro were basically one of the first low-cost, execution-only brokers where the public could buy and sell. The choice of products was vast. Not only stocks and shares were offered, but also ETFs, options, funds and bonds could be dealt.
One of the core benefits of Degiro was low fees. A few years previously one of the barriers to trading was high fee costs. Dealing through a bank could see very high minimum fees of £10+ per trade. By contrast, Degiro were aggressive in their marketing and fees were free for certain products. This has normalised somewhat, but the current fee of £1.75 + 0.014% for UK shares compares very well to most other providers in the market.
Like most others of its type, costs are kept down by maintaining a web-only platform, and an accompanying app.
It is important to note that whilst Degiro trades in the UK, the company itself is regulated by the Netherlands and as such has its own version of the Financial Services Compensation scheme (FSCS).
Degiro Review Sign Up Offer
Degiro offer a relatively strong sign up bonus for joining. Up to £20 of transaction fees generated in the first three months of trading are reimbursed to your account. This equates to roughly 11 or 12 UK trades depending on size, so it not a particularly onerous requirement.
To find out more about the offer and to join, please click here.
Are Degiro profitable?
Degiro are not a publicly listed company in the UK and thus information about its revenues can be harder to find. However, in 2019 the Degiro was taken over by Flatex AG, who have kept the brand running. FlatexDegiro (to give the new name) are a listed company on the XETRA exchange with the ticker FTK.
At a market cap of around 2.3bn Euros we can see that this is not a small company at all, and instead is a large one. The annual reports are harder to interpret but it seems the acquisition has had a meaningful impact on the company sending revenues up sharply. Net profit was 22.3m EUR at HY2020. Cash was heavily up at this point to 932.5M EUR but it is important to note that this comprises banking deposits, and liabilities to customers is larger than this at 1.4Bn EUR.
However this is fairly common for banks: after all a large part of their business is taking deposits and putting them to work. With only modest amounts of external debt this all looks OK, but with the caveat that Wirecard AG also probably looked good as well.
How does Degiro work?
From the investor point of view this is pretty simple. You can open an account fairly quickly. You will need to verify your identity and classify yourself as an investor. Depending on what products you want to access, there will also be a questionnaire to test your knowledge. This should not present any problems.
After this, you can deposit to your account to get started. As a measure of no-frills, deposits are only accepted via bank transfer; there is no card facility.
Then it is on to the platform. This can be accessed via either the web, or the Degiro app. This is strictly no-frills. Many other providers will have content, news or analysis tools but things are slightly more rudimentary here with only basic information provided. However, execution of trades much works in the same way – you choose what you want to buy or sell and it is done. Much like other platforms you can also leave an order open or take the prevailing market price.
The range of products is fairly comprehensive. There are equities, not just from the UK but worldwide, and also ETF and investment funds. If your account is enabled, you can also deal futures, options and warrants. The latter products assume proficiency and no guidance is given for them.
The trade off is as mentioned before, very low fees. The fees vary in value depending on what type of product you are purchasing so it is best to refer to the fees document before making a purchase. There are also some fees not seen on other low-cost platforms. For instance, Degiro charge a EUR 2.50 fee per year for each exchanged traded on outside the home one.
An interesting feature of Degiro is that you can use your existing holdings as collateral to purchase new ones. This leverages your buying power upward by a modest amount. The end result is you can purchase more shares than you would be able to normally with another broker that does not offer this facility. It is not fee, however: any collateral used also attracts interest charges. These can end up being significant, especially if you have borrowed a lot.
How are funds protected?
The important point to note is that Degiro is not covered by the Financial Services Compensation Scheme. However, due to its domicile in the Netherlands there is an equivalent program which Degiro is registered under. This gives a protection for investors for up to 100,000 EUR in assets or 20,000 EUR in cash.
As with most discount brokers you do not physically own the instruments you purchase. In the event of insolvency, assets would be sold and you would receive the proceeds, less fees. In theory this should present a problem as assets are segregated and short positions cannot offset the long ones as they are in separate accounts. In practice a very large position in illiquid securities may be quite difficult to unwind without affecting their value.
Degiro Review: Pros:
There are many things to like about Degiro.
- Low Fees: The fees for many types of instrument are genuinely lower than competitors. Someone trading exclusively on their home exchange will notice a marked difference in fee rates over time.
- Wide range of products: Unlike discount brokers such as Freetrade or Trading212 there is a wide range of products to purchase, from ETFs, mutual funds, options as well as shares.
- Use shares as collateral: You can spend in excess of deposited money by using shares as collateral, in exchange of a small interest charge.
- Strong regulation: Although not covered by the FSCS, the Dutch equivalent should operate in much the same way and has equal credibility.
Degiro Review: Cons:
There are also some things to be wary of:
- No card deposit: accounts can only be loaded by bank transfer. This isn’t so ideal if you want to purchase something immediately and have no funds on account. This also works the other way as well, as withdrawals are also slower.
- Proficiency assumed: Using products on the app assumes you know what you are doing. There is little instruction provided. For example trading options will give no narrative and just display the rows of numbers.
- Forex and CFD: Degiro offer an execution only service and are not a counterparty. Thus products such as forex and CFDs are unavailable.
- Limited service: Perhaps to keep costs down, customer service is more limited than other platforms. The helpdesk does not have live chat, and is only available in English during certain hours of the day.
Degiro Review: Conclusion
Degiro do offer a genuinely lower-cost way to purchase equities. Their fees are not as low as the lowest cost provider (Freetrade). However for this fee you gain a larger degree of control over your trade and also a wider range of markets. Unlike many of the startups which are burning cash to achieve market shares, Degiro’s parent company is already profitable. The company also falls under Dutch jurisdiction and has its own protections if the company fails.
On the downside, the platform is less friendly to use than others. It provides execution only services and little in the way of content. For certain products such as ETFs there is no real advantage than buying at souce (such as Vanguard). Additionally, investments bought at Degiro cannot be held in an ISA, which companies such as IGIndex do offer so your own personal situation may be worth considering.
Disclaimer: This Degiro review represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm.