- Robinhood in the US is the most famous, but over here we have Freetrade. (( Trading 212 also have commission-free trading, and eToro and Revolut plan to join them ))
Freetrade was founded in 2015 by Adam Dodds and has regular crowd-funding rounds on Crowdcube (there was another in the week following that in which I wrote this post).
- Freetrade has an FCA licence and joined the London Stock Exchange so as to be able to process its own orders in bulk.
I signed up to the waitlist a long time ago and persuaded enough of my friends and colleagues to do the same (using my referral code) that I made it almost to the front of the queue.
- So I was looking forward to the beta test until I discovered that there was no desktop site, no Android app and the iOS app needed a recent version to work.
Even the waitlist app for Android needed a recent version of that operating system.
I’m also not a massive fan of trading from phones, so the lack of a website could have potentially been a big issue.
What’s changed?
A couple of weeks ago, my other half upgraded her phone after just fifteen months and handed me the old one.
- So I now have a Samsung S8 running Android version 9.
This is by far the nicest phone that I’ve ever had, and suddenly trading from my phone doesn’t seem impossible.
- As part of the new deal, I also got a Huawei tablet running Android 8, so I also have the option of trading from a 10-inch screen.
As you might have gathered, the Freetrade Android app is now live, and there is no waitlist.
- It still needs Android version 7 or higher, though.
I have my own theory on why they might not want to support older versions, but I don’t plan to air it here.
Costs
Trades on the main UK platforms run from £12 at Hargreaves Lansdown, down to £5 at iWeb and £6 at X-O.
- I have tried out DeGiro, where most trades work out at less than £2, but their European insurance scheme meant that I never put more than £20K into the account.
Some platforms have discounts for frequent traders (usually cheap trades in the month following a busy month, which is not as useful as it sounds).
- Others allow cheap trades if you bundle your purchase with everyone else, in a large trade done once per day.
Which is essentially the approach that Freetrade uses.
- Freetrade charge nothing for the 4pm bulk trade, and just £1 if you want your own instant trade.
They also charge £3 per month for an ISA (or rather, they will from July 2019).
Foreign trades (currently just US stocks plus some Asian companies listed as ADRs in New York) have an FX surcharge of 0.45% over the spot rate.
- I don’t know if you can change a part of your account into dollars and hold the money that way, or if you have to convert on each trade individually – I suspect the latter.
I have a couple of thousand dollars on my PayPal account and this could be a good use of it – assuming that PayPal transfers are accepted.
Stock list
The “Freetrade securities universe” – which you can find here – contains just 354 securities:
- 10 of these are ADRs of non-US stocks listed in the US.
- 184 are UK stocks (more than 30 of these are investment trusts)
- 117 are US stocks
- 43 are UK ETFs
So you would need to be pretty selective as a UK stock investor.
- The US list and the ETF list look more interesting, as do investment trusts.
The obvious omissions are European stocks and AIM stocks.
- I’m not sure why Euro stocks are missing but I would imagine Freetrade is steering clear of AIM to avoid liquidity issues with their 4 pm bulk trades.
Applications
The ISA costs £36 a year, so assuming you go for the £1 trades, you would be ahead of iWeb (the cheapest ISA) after 10 trades.
- This assumes you already have an iWeb account and have paid the £25 opening fee.
The reduced UK stock list means that it’s not suitable for a trading ISA.
- So you would probably have to build up a 12-20 stock ETF portfolio with these trades (and a few more).
But then you would be paying an extra £36 a year, so you would need a fairly large portfolio to make that charge insignificant.
- At £36K, the charge would be 0.1% which is still a lot.
- At £360K, it would be 0.01%, which is not a lot.
But is anyone really going to put £360K with a new independent startup?
- Note also that since ISA transfers are not currently supported, it would take you 18 years to get to £360K (ignoring any growth in the value of your investments).
ISA transfers are on the product roadmap, which you can find here.
- So are European stocks, fractional trades and SIPPs.
With the ISA ruled out, we’re back to the basic account, and once again the short UK stock list rules out a UK trading account.
We’re left with three options:
- A US account
- An ETF account
- An investment trust account
Any of these could be made more advantageous (compared to iWeb) by using a trend following strategy, which usually requires a lot of trades.
With a £1 dealing charge, my minimum deal size can come down from £10K to £2K.
- For a decent portfolio of at least 10 positions, we would need a £20K account.
At the other end of the scale, average annual returns of 7% nominal would mean that an account of more than around £170K would be likely to run into capital gains tax issues.
- That’s a pretty high ceiling, though outperformance from trend following might bring this down a little.
The ETF list
Let’s break down the list of 44 ETFs:
- 6 UK corporate bond funds, including short and high yield
- 3 UK Gilts (including indexed)
- 5 US bonds funds, including government, corporate and high-yield
- 4 Euro stock funds (1 div)
- 6 UK stock funds (FTSE-100, FTSE-250, FTSE All-Share, plus 2 x high div)
- 2 World stock funds (1 div)
- EM stocks and China stocks
- Japan (including small caps) and APAC
- 6 US stock funds (2 x S&P-500, Nasdaq, Russell 2000, Russell Mid-cap, high div)
- Gold and Silver
- UK Property
- Robotics
So more like a dozen asset classes than 44, but still enough to build a trend-following portfolio.
Running a quick momentum filter gave ten potential buys at the time of writing:
- Gold
- Robotics
- US government bonds (7-10 year)
- UK indexed gilts
- APAC
- Nasdaq
- Europe
- Russell Mid-Cap
- World
- FTSE All-share
Next steps
The immediate next steps are:
- Open and verify an account
- Transfer £20K into the account
- Start a 10-ETF trend following portfolio to get to know the app
Once I’m up and running with a portfolio, I’ll be back with a review of how the app works in practice.
In the medium-term, we could look at:
- Adding a US account
- Adding an investment trust account
- Shorting the worst-performing ETFs and US stocks in parallel with the Freetrade accounts (via IG).
Until next time.
