An Honest Critique of FreeTrade

I have a couple of shares on 212 that aren’t currently available on Freetrade. However their terms and conditions hold me back from putting any serious money there.

Nothing wrong with using multiple platforms to suit your needs. Though I expect I will likely not be using 212 by the end of next year.

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Can I ask why Eden?

My personal concern is mainly around the increased potential risk with how they hold funds and stocks. You can see what I’ve said here Plus Paywall Stocks Poll - #29 by Eden

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Its DAU, active subs and AUM that should matter I guess.

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You’ve mentioned a couple of times about increased risk with T212 compared to FT. I’ve read the T&Cs you mentioned and I don’t see the difference - both hold client funds in the UK in separate client accounts and both hold shares on behalf of customers as nominee holdings ie FT or T212 buy the shares and hold them on your behalf and operate internal stock records.

Both have used or still use intermediaries for market access: my understanding is FT trade directly on the LSE but through an intermediary for the USA. T212 trade through IBKR for all trades.

Cheers

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12.7. We may hold client money in a client bank account located in a jurisdiction outside the UK. The legal and regulatory regime applying to any such bank will be different from that of the UK and in the event of the insolvency or any other equivalent failure of that bank, your money may be treated differently from the treatment which would apply if the money was held with a bank in the UK.

212 may hold funds in a non UK bank account which may not be subject to the same regulatory rules as if it were in a UK bank account. (* the bank may be subject to different rules, not 212) (this is the same for Freetrade fyi)

13.5. Investments purchased by us on your behalf or transferred to us will be registered in the name of a nominee company or our name or a sub-custodian. We will be responsible and liable for our nominee to the same extent as for our own acts, including losses arising from fraud, wilful default or negligence.

13.9. You agree that because of the nature of applicable laws or market practices in certain overseas jurisdictions, we may decide that it is in your best interest for your Investments held with us to be registered or recorded in our name or in the name of the person who is a custodian for the purposes of the FCA Rules, and if it is not feasible for us to do this, then:

  1. your Investments may be registered or recorded in the name of the firm or custodian as the case may be;
  2. your Investments may not be segregated and separately identifiable from the Investments of the firm or custodian in whose name your investments are registered; and
  3. as a consequence, in the event of a failure, your Investments may not be as well protected from claims made on behalf of our general creditors. You should note that when we arrange for a third-party to hold your Investments overseas there may be different settlement, legal and regulatory requirements than those applied in the UK.

Highlight mine. They specifically state that they may hold your assets directly in their own name rather than a nominee account.

They only replied initially to my concern about funds saying that 100% of client money is held in the UK. When i showed them their own terms they changed their response to say that this (both holding money aboard, and their terms around holding assets in their own name rather than a nominee) is to allow them ‘flexibility’ in case of emergency to take urgent action and to keep their business model sustainable.

In contrast Freetrade say the following

In regards to investments

When you invest with Freetrade, any UK-listed stocks or ETFs that you buy are held in your name by Freetrade Nominees Limited, which holds stocks and ETFs , with you as the beneficial owner.

legal:

We use third-party Custodians to hold our clients’ funds (including your Available Funds) and Securities for them. In the case of Securities purchased by you through our Services, we may use our own nominee company, Freetrade Nominees Limited, which is also a Custodian. We will require those Custodians to hold your Available Funds and Securities in accordance with the rules of the Financial Conduct Authority in the United Kingdom, including that all cash should be held in a segregated and designated client money bank account (to be clear, you will not have your own account with our Custodian, there could be a single account in which all of our customers’ funds, including yours, will be deposited).

In regards to funds, or more specifically location of where funds are held Freetrade are similar in that funds may be held aboard

While we will typically use Custodians that will hold our clients’ funds (including your Available Funds) and Securities in the United Kingdom, we may also, in our sole discretion and based on the Securities in which you make Instructions, appoint Custodians to hold funds and/or Securities abroad. We will use reasonable endeavours to ensure that the level of protection afforded by Custodians who hold funds and/or Securities abroad will be materially the same as the level of protection afforded by our Custodians who hold funds and/or Securities in the United Kingdom, however you should be aware that there may be differences.

As i’ve said previously, I don’t believe there’s anything wrong with the terms, but people seem to be completely unaware of the terms of how their investments may be held. Depending on where funds may be held is potentially more of an issue if the bank goes bust. Different regulatory protections apply in different countries but I expect that the vast majority of people aren’t keeping significant cash in their accounts (i believe for example the maximum protected amount in Ireland is less than the UK).
Investments are another story because everyone assumes that their investments are held with a third party custodian unlinked from the main company and therefor protected but the 212 terms dont say that.

Interestingly 212s terms state that only investments held with a nominee company are held with you as beneficial owner. Whether this is just an oversight I dont know, id give them the benefit of the doubt and say it probably is. But the whole point of a nominee is to protect you from debts of the company.

13.6. Whenever your Investments are registered in the name of a Nominee company nominated by us, that Nominee will hold them on trust for you. This means that you are the beneficial owner of the Investments. Any Investments held by a Nominee will be held in an omnibus account.

Holding assets in their own name is my concern and i wasn’t happy with their response around it either, so for me personally while i may use them im unlikely to keep any large holding with them in the future.

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Yes, this is true. The usual practice for this is to hold shares in a separate nominee company, this ensures that your shares are always separated from the main company. That’s outlined in my post above. In the case of 212 they state they may deviate from this practice and hold shares in their own name rather than a nominee.

As to your reason that they may do so to lend out shares, they don’t say this in their terms and conditions. They only say that they will lend out shares but you will continue to be the beneficial owner. the beneficial owner isnt the same as the name on the share, and they make no mention of shares changing ownership to themselves in regards to share lending.

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After reading this thread , people will decide whether you want to have an account there at all with the risks involved .

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Can anyone tell me if the money made in “ Freetrade Nominees Limited” ie: Interest belongs to the main Freetrade Company that I have invested in.

Ohh boy, seriously with out telling client increasing the interest overnight and u think its okay, and 30+ spread on Mcdonald share.iam just halfway through the comments. Giving 24 hrs notice to deposit amount that too pushing to trade in 1 hr window, with high spreads, what about the ppl who don’t get the notification? Okay they backtracked after the users rant about 800 pages in forum, while they removed the user comments and censored the posts.
All it says about the teansperency.

And their main source of income is based on the above methods.
All I can say is goodluck with your money.

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I think there’s alot of sense you’re talking here dragos. It looks as though the problem is with how it has been communicated in the first place to even get to postpone it but also they would have far more intelligence in the way their system is preforming that just makes the relatively abrupt decision to increase the margin requirements for everyone quite astonishing.

I’ve seen that other cfd providers have also had to increase margin but it does seem as though they communicated it better to their clients.

I think your point about using cfd’s poorly is probably a good one but isn’t that down to 212 to manage? There are alot of clients asking how to even work out the margin they will end up with.

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Definitely agree with you. Cfd’s should be used by alot of people.

I agree, alot of people need to educate themselves alot more before investing. Or at least try a fantasy account first.

My point about being down to trading 212 to manage was more about the fact they should have had a better handle on the margin requirements if they felt people were using their platform poorly and over exposing them as a company?

I know they trade to do that a little by targeting specific stocks that couldn’t have a new cfd contract put in place but this all seemed to be very quick which just seems to have been able to be handled better from an outside perspective.

We won’t know exactly what’s happening with them but I can tell this margin point might not at all have been helped by the other issues they had this week.

So, 212 increased the margin requirement from 20% to 50%, after market, which due to the short trading day on Friday left their customers only an hour to trade to correct their positions or add more funds? Then due to the uproar on their forums where it’s clear some of those customers have no idea how to calculate the new margin, they relent and give an extra day to trade/fund, but they are stand up guys and a good company?

Whereas FT going to the Plus model, which is based on simple buckets FTSE350/FTSE All Share, AIM 100/Aim All Share are just the worst and folk want to leave for 212? Good luck with that.

And that’s leaving aside a number of people saying they can’t even see a withdrawable balance on 212 far less actually remove their funds.

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Ignoring cfd’s which freetrade imo shouldn’t ever offer (at least in the way the industry is currently regulated), what features would you want to see in freetrade that would make you amalgamate your two portfolios?

This topic changed directions quickly :smile:

To get it back on topic somewhat

Freetrade will keep any interest gained on available funds

25. Interest On Your Available Funds

Your Available Funds will not attract any interest, even if they are in credit. You acknowledge that we may receive interest on all of our clients’ funds held by our Custodians, and hereby waive your right to claim payment of any part of such interest.

Edit: i also have a thread on the terms and execution policy Seriously, Read the Execution Policy and the T&Cs if people want to tear freetrades terms apart

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Thank you that is reassuring,I am happy for Freetrade to make good use of the interest :+1::grinning:

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I’ve always believed that T212 isn’t the real competition - the real competition are the legacy platforms for investors (not traders) which provide long(er) term investing via ISAs and SIPPs. That’s the market I think Freetrade is going after.

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Reading the T212 forum it’s a bit of an eye opener how many people are in for 000’s on CFDs and don’t seem to fully understand them.

Even on the Invest side the GraniteShares 3x short Rolls Royce instrument where people got cleaned out totally appeared not to be understood by some investors.

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Gives you a bit of insight into the 76% of their customers who lose money rather than make money.

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