A Risky Bet for New Investors? Trading 212

Selecting a trustworthy broker is a fundamental step while entering the world of investing. Finding the best suitable option can be a hassle, considering the broadness of choice the investors are presented with. High market demand among the European Economic Area and a great deal of active customers makes Trading 212 a hot topic for a discussion.

Trading 212 is a fintech company. It presents itself as a platform that utilises user-friendly interface to make financial market accessible for anyone.

Let’s examine the pros and cons and determine why Trading 212 is bad or good for newcomer investors. This analysis will focus on the pitfalls, costs, ease of account setup, and security. By taking an objective look at the bigger picture, we can identify the main benefits and drawbacks of Trading 212.

Trading 212 Review: A Bit of Backstory

In 2004, Ivan Ashminov and Borislav Nedialkov established Trading 212. Due to its “commission free investing” offering, it has become one of the top brokers in Europe. Now, the platform has about 2.5 million customers throughout Europe.

Besides, the number increased drastically when they integrated no entry fee for the newbie traders during COVID. At the moment of writing, their client assets value at over €4 billion. 

The traders entering the platform receive a two-option choice. First, you can open an ‘Invest Account’, which allows commission-free stocks and accessible ETF trading. The second option is ‘CFD Account’, which targets more experienced traders. Today, we will focus on the first option to provide insights specifically for newcomers.

Pros and Cons Run-through

Pros:

Minimal costs
A prudent selection of financial instruments
Exceptional customer service

Cons:

Compulsory securities lending
Targeted for traders
Not easy for beginners
You have to figure out taxes yourself
Can’t easily move to another broker

Trading 212 Fees Breakdown

The use of Trading 212 is free. No commission is charged when purchasing or selling stocks. Furthermore, there are no custody or inactivity costs. Both the account creation and membership do not require any payments.

The question arises: what is their revenue stream if everything is free of charge? The answer lies between the lines – currency conversion fees and residue.

Since most investors opt to purchase an ETF or a stock in USD, they will be charged a 0.15% fee. Notably, the majority of Trading 212 are from the EU, meaning their preferable currency of choice is EUR.

Trading 212’s business model appears to heavily depend on the exchange rates between Euros and Dollars. 

In comparison to other European platforms in the market, Trading 212 seems to be the most affordable broker available. For example, purchasing €1,000 of the iShares Core S&P 500 ETF comes at no cost, which is quite an advantage.

Moreover, when purchasing shares worth more than £1000 in the UK, stamp duty is levied. Currently, the assets come at a rate of 0.5%. UK shares are subject to a £1 PTM levy for transactions over £10,000. These charges aren’t exclusive to Trading 212, of course.

Accessibility And Broad Spectrum of Financial Instruments

Trading 212 offers both web and mobile versions of their platform for a quick and easy access. Setting up an account takes not more than one single business day. However, it is still easier to respond to a series of questions about security, profile, education, experience, product expertise, etc. from a computer.

Trading 212 is primarily a trading platform, so it displays a lot of information that most investors, especially buy-and-hold index investors, won’t find useful. This can leave novice investors feeling overwhelmed.

However, the app itself has a really user-friendly design and is simple to use for its main purposes. For this reason, the most of the reviews gathered from the web gave the platform a usability score of 3 out of 5.

Using Trading 212 to register for an account is quite simple. When enrolling for the first time, do make sure you select the appropriate account type. After you complete the form and upload your identity documents, your account will be examined and verified. You’ll need a copy of our passport or ID and your IBAN in order to open an account.
Another significant advantage is that Trading 212 operates in all EEA countries. The only exception is Belgium, where the platform is banned due to the country’s federal policy. 

All That Glitters is Not Gold: Why Trading 212 is Bad for Beginner

One downside of the platform that can’t be left unmentioned – Trading 212 promotes Contracts for Differences (CFDs), which are extremely dangerous. Furthermore, their CFD proposition accounts for the majority of Trading 212’s overall revenue.

Because of the absence of industry regulation, possible lack of liquidity, and requirement to maintain a sufficient margin owing to leveraged losses, CFDs can bring a great deal of risk.

But how do CFDs actually work? With these assets, things are a bit different. In this case the trader isn’t involved with the market directly. Instead, they are betting on price movements, while Trading 212 is backing the opposite side of the bet.

That way, the spread is increased, affecting the stealth fee. The difference between the asset’s cost from the moment of betting to the time when the bets are closed is the stealth fee.

Their high leverage allows you to handle a significant stake with a comparatively small amount of capital. Such an offer sounds great at first sight. However, this is exactly what causes concerns.

Leverage can increase profits, but it can also largely increase losses. That way, investors run the risk of losing more money faster than they originally invested.

Furthermore, CFDs might be intricate and challenging to comprehend, especially if you’re just starting out with investing. You should carefully review the terms of the CFD contract, including fees, margin requirements, and potential risks and rewards, before engaging in any CFD trading. According to statistics, most investors lose money while trading CFDs for these reasons. CFDs are complex instruments that can rapidly lead to substantial losses due to leverage. Therefore, it’s crucial to understand how CFDs work before diving into trading them.

Significant Platform Limitation

Trading 212 does not allow you to open joint or child accounts. Besides, there is also no option to create an account for business purposes. This is quite inconvenient as it limits the potential clientele who strive to enroll in the system for different purposes. 

Another unfortunate aspect – Trading 212 does not allow you to transfer your assets to another broker. Before starting investing through a different broker, you are only able to withdraw all of your assets. 

What About the Deposit Guarantee and Plan Security?

It’s crucial to note that the European Bank deposit scheme (up to €100,000) does not secure your money. This is very unusual for European brokers.

They do, however, have additional insurance coverage for your assets up to €1 million from Lloyds Bank. This gives you a certain level of comfort regarding your possessions.

Despite mentioned flaws, the company itself has not received any regulatory complaints. Because Trading 212’s investments are based in Cyprus, they are covered by the normal €20,000 European investor protection system. The Cyprus Securities Exchange Commission has granted Trading 212 authorization to operate as a regulated firm within the European Union (CySEC).

Security Check: Is Trading 212 Safe?

Trading 212 gives out their holder’s shares to reputable borrowers. As a result, users get collateral and daily interest in exchange. Each day, the investors’ shares are being leased out.

In exchange, the potential leaser gets paid 50% of the earned interest rate. It is important to know that this feature activates by default. The platform exposed its plans to integrate direct option sharing in their practice. However, they have not yet put their plans into action. 

Trading 212 doesn’t appear to handle payment for order flow (PFOF). For a lot of new brokers, like Trade Republic, another German provider, it is a significant source of income.

Using this method, your orders are routed to certain market makers, who pay the broker to execute them. PFOF may be detrimental to you since brokers may put remuneration ahead of making the greatest trade for you.

The platform is transparent about the way it makes profit: it generates revenue through CFDs and currency conversion. Investors do not risk stumbling into unclear policies or hidden fees. 

Emergency Cases and Customer Support

If something unexpected happens, Trading 212 will have your back. The platform offers highly responsive customer service via phone, live chat, email etc.

Additionally, Trading 212 is equipped with a Help Center, which provides all the answers to any possible questions that may occur.

Reportedly, the current state of Trading 212’s customer experience is highly ranked. However, the platform had indeed experienced quite a lot of issues regarding that matter in the past. In the previous years, the customers have given negative reviews to the way the customer support handled their case.

Nevertheless, it is fair to say that Trading 212 took the matter into its’ own hand, putting an effort to improve this aspect. It shows the company’s careful and thoughtful approach to the customers, as they are willing to provide the best service possible.

Is Trading 212 Suitable for Beginners: Final Thoughts

Although Trading 212 provides a good selection of investing options, it may appear a little blunt for traders with experience. Nevertheless, the platform can be considered suitable for the beginners as its practice account allows you to become familiar with the platform before making real trades.

Besides, its comprehensive support section with video lessons is excellent for helping you grasp the fundamentals of trading. Not to mention that it’s the most affordable platform available.

Naturally, that does not imply that it will be appropriate for everyone. Although there is a good selection of optional assets, it may not be as extensive as some other platforms out there. Hence, investors who want to buy more obscure stocks might have to utilise a different platform or ask for Trading 212 to add those stocks. And this is exactly why Trading 212 seems to be the best fit for the beginners in particular.

Our verdict is clear – despite some minor issues, Trading 212 offers an accessible and user-friendly platform that makes it an attractive starting point for those new to investing, though it may still pose some challenges for the uninitiated.

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