Henry

One of the most frequently asked questions by my friends is how to trade stocks in the UK? Which broker is good to use?

Here, I will briefly compare two commission-free trading platforms in the UK, Trading212 (hereinafter referred to as T212) and Freetrade (hereinafter referred to as FT). As they both come from a FinTech background, can they compete with traditional brokers?

This article is purely a sharing of personal experiences and understanding and does not constitute any investment advice.

Overview#

Platform	Supports ISA	Supports fractional share	Supports ETF	Currency conversion fee	Asset custody fee	Asset protection
T212	✅ Free	✅ US stocks, European stocks, ETFs	✅	0.15%	0	FSCS
FT	✅ £4.99/month	✅ US stocks, European stocks, ETFs	✅	0.45%	0	FSCS

Supports ISA#

The importance of Individual Savings Accounts (ISA) cannot be overstated. Here are a few points to note about ISA:

1. April 5th each year is the end date of the UK financial year.
2. Each resident can open one Stocks and Shares ISA, Cash ISA, and Innovative Finance ISA per financial year.
3. Each resident can only deposit money into one ISA of the same type per financial year.
4. The ISA annual limit may increase; currently, for the 22/23 financial year, it is £20,000, and the deposited money does not return the limit once withdrawn.

Among the three platforms, T212 offers free ISA, while FT requires a subscription to the Standard plan at £4.99/month to enable ISA.

Supports SIPP#

Self-invested personal pension (SIPP) is a very popular way to invest in pensions nowadays. In employer-provided pension plans, you have almost no autonomy, and the return rate completely depends on the performance of the pension management institution. The pension management institution also charges opaque high asset management fees (otherwise, why do UK universities often strike over pension issues? The pitfalls of UK pensions could warrant another article). In SIPP, you can choose your desired investment targets, such as low-fee or no-fee ETFs, which greatly reduces investment costs while ensuring a certain level of stability, and avoids the waste and asset management fees of pension management institutions (I’m talking about you, USS university pension).

Only death and taxes are unavoidable.

For each SIPP account, the government will automatically top up your investment amount by 20%, meaning if you contribute £1,000, the government adds £200, making the total £1,200. Of course, this money is not free; it is essentially a tax refund. Since your investment amount has already been taxed, if your income tax rate is higher than 20%, you can also apply for additional tax refunds. Note that once the money enters the SIPP account, it cannot be withdrawn before reaching the statutory retirement age unless you are terminally ill. If the account holder unfortunately passes away, the SIPP can be fully inherited, whereas, as far as I know, many employer pensions do not allow full inheritance.

Currently, T212 does not support SIPP, while FT's Plus plan (£9.99/month) does support this option. Personally, I think if you plan to retire in the UK, SIPP is a very good choice. The money in your SIPP account is guaranteed to be available upon retirement, while employer pension plans, although they have additional contributions from employers, can vary greatly each year, making it uncertain how much you will actually receive at retirement (I’m talking about you, USS university pension).

Supports Fractional Shares#

Fractional shares are a way to allow you to afford high-priced stocks; for example, if Amazon's stock price is $1,000, you can buy 0.1 shares for $100 through fractional shares, allowing for a more reasonable allocation based on personal assets. Both platforms support fractional trading for some US stocks, some European stocks, and some ETFs.

Supports ETFs and Funds#

Currently, T212 supports over 1,500 ETFs and funds, while FT supports around 200. Both cover most mainstream ETFs, such as SP500, Nasdaq, FTSE 100, etc. Both also support many precious metals and oil ETFs. Many options on FT require a subscription to its Standard (£4.99/month) or Plus (£9.99/month) plans to purchase.

Currency Conversion Fees#

The currency conversion fees of traditional UK brokers are quite alarming; for example, the well-known Hargreaves Lansdown charges 1%, and Interactive Investor charges 1.5%. The brokers of major banks are even more exaggerated, with opaque exchange rates and extremely high conversion fees. (Will FinTech really not take them down?)

Among the two platforms, T212 supports foreign exchange trading, with rates coming from the foreign exchange market. It charges a 0.5% currency conversion fee.

On January 2, 2020: Customer service confirmed that non-leveraged stock trading is exempt from currency conversion fees; the previously listed 0.5% currency conversion fee has never been charged.

On April 3, 2021: T212 non-CFD accounts (referring to ISA and regular investment accounts) will charge a 0.15% currency conversion fee for all non-local currency transactions.

FT charges 0.45%, and the exchange rate is not much different from the real-time rates in the foreign exchange market, sometimes even better.

Trading Commissions, Asset Custody Fees#

Both platforms offer 0 commission trading and 0 asset custody fees. For comparison:

Hargreaves Lansdown charges £11.95 for the first 9 trades each month, £8.95 for trades 10-19, and £5.95 for 20 or more trades. Additionally, they charge an annual asset management fee of 0.45% for non-pound-denominated stocks and ETFs (up to £45).

Barclays charges £6 per trade, and additionally charges an annual asset management fee of 0.1% for stocks and ETFs (minimum £48, maximum £125).

Financial Services Compensation Scheme (FSCS)#

In short, avoid platforms that do not support FSCS.

The FSCS, explained simply, is the government backing for financial platforms. Each resident in the "UK," "holding funds with a company licensed for financial services," "on platforms under it," has the first £85,000 deposited protected 100% by FSCS. This means if you deposited £80,000 in HSBC and £20,000 in First Direct (a bank under HSBC, sharing the same banking license), if HSBC were to fail one day, FSCS would compensate you 100% for £85,000, and the remaining £15,000 would depend on how much you can recover during bankruptcy liquidation.

This is not directly related to ISA, as the assets held under your ISA account are strictly regulated by FCA, and the platform itself cannot touch your assets (ring-fenced). However, if you are using a non-ISA account, or if there is money in the ISA account that has not yet been used to buy stocks (although there have been no precedents of platform bankruptcies yet), that portion of money is also protected by FSCS up to £85,000.

Both platforms are protected by FSCS.

In short, avoid platforms that do not support FSCS.

Number of Assets#

FinTech startups now have the strength to compete with traditional brokers in various aspects.

T212 currently supports over 10,000 stocks and ETFs from the US 🇺🇸, UK 🇬🇧, Germany 🇩🇪, Netherlands 🇳🇱 (should we start calling it the Netherlands now?), France 🇫🇷, Spain 🇪🇸, and Switzerland 🇨🇭. Additionally, on its user forum, you can request the addition of new stocks; I requested once, and it was available for trading within a few hours. T212 actually uses the matching channel of Interactive Brokers, so theoretically, all stocks supported by Interactive Brokers can be quickly supported.

FT supports a total of 6,272 stocks from the US 🇺🇸 and UK 🇬🇧, with slow and irregular increases.

Others#

W-8BEN Form#

The W-8BEN form is a declaration form used by the IRS to determine non-US resident foreigners. Non-US citizens and non-US residents depend on your tax residence; purchasing US stocks can receive withholding tax reductions. This mainly affects the distribution of US stock dividends, where the original tax rate is 30%. Thanks to the tax treaty between the UK and the US, UK residents can avoid double taxation, and by submitting this form, the withholding tax rate can be reduced to 15%. If you invest through an ISA, this 15% is essentially tax-free.

T212 does not proactively provide the W-8BEN form; you can download it from the IRS website, fill it out, and submit it to customer service.

FT will actively request you to submit this form when you open an account.

Customer Service Response Speed#

In addition to phone support, both platforms offer in-app customer service.

T212 provides almost real-time responses from live customer service in the app, with professional and timely replies. I have used it a few times, and the experience was very good.

FT's customer service response speed for the free or Standard version depends on luck, ranging from a few hours to several business days.

Trading Mode#

Trading212 supports limit orders with completely free and unlimited trading. Notably, Trading212 has introduced a Pie mode, similar to M1 Finance. This mode allows you to add stocks and assign a percentage to each stock, automatically purchasing stocks according to the Pie's funds. Dividend income will also be automatically reinvested according to the percentage (automated dividend reinvestment).

In Pie mode, you can also manually rebalance by selling stocks that exceed the assigned percentage and buying stocks that are below the assigned percentage. Coupled with regular automated deposits, this mode achieves a lazy way of dollar-cost averaging into stocks. The Pie mode also introduces a social aspect, allowing users to share, comment on, and copy others' published Pies.

FT requires a subscription to Plus (£9.99/month) for limit orders.

Design Interaction#

T212, both in functionality and design, resembles a traditional broker, offering mobile apps, tablet interfaces, web interfaces, and even Chrome extensions. The design is simple, and the operation is smooth. The tablet and web interfaces are very comprehensive in terms of technology.

FT is a genuine internet FinTech company, only supporting mobile app operations, possessing all the qualities required of modern mobile apps. This also leads to a lack of traditional technical elements.

Conclusion#

Both platforms are very user-friendly; I personally prefer T212, which is my main platform. Its social features are still in the early stages, allowing users to view other users' Pies, which is better than nothing.

FT's support for SIPP is a significant highlight, and the app's operation is very suitable for the current habits of young people, so I am very optimistic about FT's future growth and have participated in its fifth crowdfunding round.

My Investment Tips#

1. Analyze the fundamentals before buying; do not blindly follow the trend to buy well-known companies.
2. Only invest spare money; the stock market is essentially a gambling market. Investment carries risks; enter the market with caution.
3. Hold long-term; do not be affected by short-term fluctuations. If you are not prepared to hold stocks for at least 5 years, please do not enter the market.
4. While taking risks in stock selection, allocate a portion of funds to dollar-cost averaging into ETFs.

Invitation Links#

Here is my FT invitation link, which offers a stock worth up to £200 (generally not exceeding £20).

T212's invitation link allows both parties to receive a stock worth up to £100 (generally not exceeding £10) after registering an account through this link and depositing at least £1.

By registering through the above links, you can still receive account opening rewards, but I have reached the invitation limit and will not receive any rewards.

Finally, I wish everyone 💰 prosperity.