Not wanting to be a bringer of doom and gloom but how will Freetrade fair during a recession? There is an increasing amount of chatter about a possible recession in the US and possibly globally within the next few years… with a recession typically comes a decrease in investing, which could hurt Freetrade badly. So the question is - can Freetrade in it’s young state weather a global recession? What are people’s thoughts?
If a recession strikes I’ll be using Freetrade to buy the dip, as I imagine lots of others will do.
It’s a good question On the one hand, it is likely that there would be a lull in investor sentiment as people’s natural reaction is to sell and retreat. But I think Freetrade is probably in a better position than older competitors:
If you have a large portfolio with HL or another competitor, you are probably more likely to sell/pull your investments, than if you’re like me who is starting to invest regularly (any losses will be less in absolute terms).
If people do ‘buy the dip’ they may want to do that on a low/no fee platform, and therefore Freetrade may actually see an increase in activity on that basis, which is the current revenue driver.
Linking to the above, it may be a time when people look st their portfolio and brokers and actually make a change, if you’re selling and then looking to get back into markets in a month or two then FT is great if there are no exit fees etc to get in the way.
FT are still currently venture (Crowdcube investor!) backed, and while I’m sure they’d love to be making a profit ASAP, there isn’t a need to as much as there is go HL or AJ Bell that aren’t and are public. I.e. they may actually be more able to ride it out.
I could be wrong though haha
The only concern would be funding source. Freetrade may need investors’ financial support in the next few years and if that support ceases, there is (albeit not too high) a degree of insolvency risk.
Yes agreed, very valid point
Good point, I think the way freetrade is set up though I think they should be profitable at much lower user numbers and activity.
As much as I hope it will be the case, in the absence of quarterly financial statements (which Freetrade, of course, is not obliged to produce) and knowing that the team consists of circa 40 staff now and recruiting more (the most significant fixed overhead), I would prefer taking a conservative view on the income generation potential.
The thing is, the majority of users are likely to be subsidised by the active ones (Alpha/ISA holders), as it is the case with banks’ free current accounts. That may require significantly more users to get to the break even.
That said, it will be a pleasant surprise if Freetrade turns out to be profitable sooner as you are suggesting, would certainly be a sign of excellent management
I find myself agreeing with your points on probably everything vlad. This one too. I believe when measured against the other stockbrokers and their own systems that freetrade overheads will be far lower. In the early phase of freetrades growth however, before they get significant numbers of users then I agree, there will be a large cash requirement potential that is so far plugged by crowd raised funds.
From what I’ve seen to date, the growth, the product and lore importantly the spend to get to this point, I believe freetrade have been quite frugal compared with other crowd funded companies of recent years.
It’s a fair point but because of the low charging structure they will need ALOT of alpha payers to pay for 40+ staff and rent alone. About 15,000 alpha payers by my completely guessed fag packet math.
I’m sure we’ll have more info in the pitch documents
For my savings and investment current capacity the best option for me would be to place free basic orders only. However, I want Freetrade to succeed and stay in the market. For that reason I am not placing free basic orders only. In fact, I’ve placed two buying orders only so far. Both instant £1 orders.
So that there’s no doubts here’s a recap of that day:
- Tried to place instant £1 orders several times, all failed
- Booked 2 Basic 4 PM free orders, which also failed
- Successfully placed two £1 instant orders.
My plan is to mix basic with instant orders. It’s my way to support the company. And I do so in a conscious self-interested way: I want to be able to pay as much as £1 per order. Forever