Do Freetrade make money on the spread? Do Freetrade widen their bid/offer spread?

A question to the Freetrade team. Who do you execute your trades with at the end of day and do you widen your bid/offer you receive when it’s passed on to users?

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We execute our trades with the Retail Service Provider (RSP) network.

Longer explanation

At the moment, when your Freetrade order successfully completes the venue ID on your contract note will read: London Stock Exchange. This ID could mean two things:

  1. Your trade was placed on the LSE order book itself and matched with a counterparty. This is known as an order-driven market as all the bids and asks are displayed, which is great for transparency. This is the norm for trades above a certain value between certain parties (usually institutions), but there is no guarantee that someone is willing to take the other side of your trade and successful execution is much less likely for small orders (i.e. from individual investors).
  2. Your trade was placed with an LSE market maker, aka a Retail Service Provider or RSP. This is known as a quote-driven market as the market maker will provide a firm quote to take the other side of your trade. This is the norm for smaller ‘retail size’ trades.

Most of our customer orders are at a suitable size for option 2. That means we take your order for e.g. 10 shares of Barclays and ask the network of LSE market makers to provide a quote.

We then choose the best price that can be executed quickly. :+1:

Sometimes trades can get rejected because the price quotes we get back from the market makers aren’t good enough based on the observable prices against big orders on the LSE order book.

This is part of our commitment to best execution, a regulatory requirement for execution-only brokers. :heart:

(Quote from this blog post)

As we write in our Order Execution Policy:

We’re committed to taking all sufficient steps to achieve what is known as “best execution” for your orders.

No we don’t :innocent:

Also:

We never make money from the spread or include hidden commission baked into the spread.
(Quote from this blog post)

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This is not correct. I have been looking at different trades that I placed with Freetrade and checking markets trade. There is definitely difference to spread

We’d be happy to look into any queries that you have about your orders for you, just drop us a message via the in-app chat.

But to clarify, our policy hasn’t changed and we don’t widen the spread.

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Check the contract note, I thought the same at first but then saw the exact rate on the contract note with the unrounded rate.

Hi,

I noted that when I buy an US stock from freetrade I almost always pay 1% more than the price displayed on both freetrade app and google (the latter is more frequently updated).
How does it work exactly this spread? Is there a way to predict it?
This is the main reason why I always go red shortly after a bought.

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The price displayed is the mid-market price. There’s a difference between the price people are willing to pay and what people are prepared to sell for. That’s the bid-ask spread, it varies by stock depending on its liquidity.

Freetrade also charge 0.45% for foreign exchange, so it could be that.

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Thank you.

Have there been any changes recently?
I remember I was luckier 2 months ago.

Hey, see the answer from Alex above: it should answer the most general questions around the spread. If you have a specific trade we can look into, please ping us via in-app chat. :+1:

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this :point_up_2: @Stefano @Han

:clap:

1 Like