Freetrade Competitors

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Robinhood’s earnings is really interesting but also a little concerning as a FT investor:

At first glance it looks pretty good and paints quite a rosy future if you drew comparisons to Freetrade’s potential, but once you look at the breakdown it gets worrying.

Even with equities making up 72% of assets equity transactions are only responsible for 9% of earnings in 2Q21. The rest comes from options & crypto transactions and interest on lending/leverage.

RH with $73bn of equities AUC only made $52m revenue (28bps) from equities transactions with PFOF. That’s just 1/10th of their operating expenses - in fact it barely costs their smallest cost (Brokerage and transaction @ $38m) so I don’t see how that’s anywhere close to profitable for them.

I wasn’t convinced by FT moving into the crypto space, but this report make me feel that it’s 100% essential. I do wonder how long customers and regulators will tolerate the large spreads on crypto though. It’s also very clear why RH scrapped their UK plans.

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The reason for hope as a FT investor, for me at least, is the recurring revenue that comes from ISA/PLUS/SIPP (&JISA nudge nudge).

These longer forged relationships will provide a much more Investable story than a meme stock / crypto run boom. That said I don’t think we’ll see $40bn valuation for FT, I’d look closer to HL who sit a £7bn are a tough week.

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I think as you also highlighted already PFOF revenues are 28bp of total AuC. FT model is different and there is a higher forex fee charged on every cross border trade. If you go with the assumption that many of FT users trade in the US / EU you would expect them to derive higher revenues for every dollar of equity traded. I think the core business is already more generative than RH.

I personally agree that crypto trading is a way to diversify revenue streams but one needs to acknowledge that the fees charged today will only fall over a longer time as more brokerages enter the fray. It will converge towards other retail brokerage fees over time.

Overall, the retail brokerage model will always be challenged given that there is ongoing margin compression. That is why you have brokers offering funds (and earning a referral / share if trailer) and/or the offering of derivatives (and earning interest income). But the vanilla retail brokerage model is meant to be a hook for further cross-sell in the future.

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In regards to your investments not being held in a nominee account and being held by 212 directly I’ve been saying that here for months :joy: seems they’ve just made that even more clearer, which is good, it should be clearer. I’m surprised it’s taken this long for anyone to notice that subtle clause.

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And


And this is what they do with them when 212 hold your shares.

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Is this not similar to how Freetrade operate with their third-party custodians?

Oh I completely agree now, FT’s weekly top shares are almost always US so they must be making more. My concern was more that where the US leads the rest will follow and I now feel like we are much closer to the logical conclusion (0 fees) of transactions than I previously expected.

I wonder how long other markets will be able to maintain ~0.5% fees. I suppose we still pay a lot more for passive mgmt fees than they do in the US, so maybe the gap can persist for some time.

Agreed, RH are basically making nothing but if they can convert users into derivs, leverage and crypto it makes the vanilla equity business worthwhile.

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No. Free trade don’t hold assets under their own name.

Assets held for UK shares are held under freetrade nominees limited (you can look them up). Assets held in the US are held by drivewealth in a DTC nominee company (I’m less familiar with the US setup)

There’s no point that I’ve seen or heard or is even allowed where assets are held by freetrade.

Also worth pointing out that we know where the assets are held as well. 212 don’t disclose that information last time I looked.

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Cool, thanks for the explanation :slightly_smiling_face:

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Perhaps now is a good opportunity for Freetrade to remind people on how UK and US shares are held and kept safe at freetrade @Freetrade_Team ??

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An opportune twitter moment at the very least.

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No point comparing Freetrade to Bitpanda and expect the same level of growth.

Bitpanda has raised a lot of money.

Why? Same product, similar founding year. Of course we should compare them. And freetrade is not as old, but seems to be lagging quite a bit. Bitpanda managed to be successful despite being founded in Austria and not London - where every startup gets millions thrown at them.
They are already one of the largest Austrian companies (4billion vs. The largest: Erste Bank 16 billion).

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I agree that Bitpanda is a potential competitor of Freetrade if Freetrade is expanding in Europe…

In addition both companies raised their Series B in March 2021…but BitPanda raised an additional Series C just 5 months later…

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I might see a company like Bitpanda as a viable competitor to Freetrade if they were regulated in the UK and covered by the financial services compensation scheme in the UK (it’s a no to both).

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I’m a UK investor and live in the UK - that’s just my opinion that I don’t see them as a competitor.

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Bitpanda is just another crypto exchange, stocks are still in beta. Not sure it’s comparable.

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Freetrade wants to expand into the EU where Bitpanda operates. Ergo it is a competitor. It’s not even an opinion, that’s just as per definition.

How’s your location relevant to who Freetrade’s competitors are? You don’t determine who competes in financial markets :smiley:

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You remind me of someone who has had multiple accounts banned on this forum…

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