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Trading 212 Review – Investing For The Masses?

What is Trading 212?

Trading 212 has a far longer history than many Fintechs, having been founded in 2004 in Bulgaria under a different name. They first entered the UK market in 2013, but in reality the massive success of the company has been within the same timescale as the general Fintech boom over recent years.

The Trading 212 app as it exists today was launched in 2017, and they have had enormous success (maybe too enormous, as we will explain later) in attracting customers.

Trading 212 has two very clearly different sides to their business. A trading platform for stocks, shares and ETFs (which includes their ISA offering), and a CFD trading platform.

Really, the business model of Trading 212 is to offer the standard trading platform for free, in order to attract customers, and then hope to convert a proportion of these customers into their CFD business, which is significantly more profitable for them.

What is a CFD?

CFD stands for ‘Contract For Differences’ and refer to a customer being able to profit from the price change of a particular security. Essentially the trader will ‘bet’ whether the price of something will go up or down, and it is possible to win or lose significantly more than the initial investment. CFD trading is prohibited in the USA, but allowed in other territories such as the UK.

Trading 212 state on their website that ‘The vast majority of retail client accounts lose money when trading in CFDs’. Some estimates are that this is anywhere between 70-80% of customers.

Therefore, in this review we will separate out the two sides of Trading 212 and highlight the benefits and drawbacks of each.

Trading 212 Review
Trading 212 Review – Photo by Kelly Sikkema on Unsplash

Table of Contents

How does Trading 212 work?

Trading 212 is a smartphone focused app, and as such you will need to use the app on your phone. During the set up phase of your account, you will be asked if you want a regular trading or a CFD account, but you can hold both, and then switch between them via the app.

Trading 212 Features:

  • Fee-Free stock and CFD trading
  • Fee-free stocks and shares ISA
  • Minimum Deposits – Customers can trade stocks and shares, or set up an ISA for a minimum deposit of just £1. To trade CFDs the minimum if £10.
  • Practice Account – Set up an account to trade with virtual money before you add deposits.
  • Fractional Shares – you don’t have to buy a full share, you can just buy a fraction, allowing you to build up your holdings slowly.

How much does Trading 212 cost?

Trading 212 do not charge for trading stocks or CFDs, or have any monthly subscription costs – hence their reputation for being a way to trade for free. However, in May 2021, Trading 212 introduced a 0.15% currency exchange fee for trading stocks that are quoted in a different base currency than the currency your account is in. For instance, if your account is in GBP and you wish to buy a US stock that is priced in dollars, you will need to pay 0.15%. This does mean that trading is no longer completely free on Trading 212.

Withdrawals from your account are free, but if you hold stocks in a different currency than your base account currency, they will charge an exchange fee of 0.5%.

When depositing funds into your account, you can deposit any amount via bank transfer for free. If you use other methods i.e. credit/debit cards, Apple Pay/Google Pay etc, then you can deposit up to £2000 for free, and above that you will be charged 0.70% of the amount deposited.

How does Trading 212 make money?

Trading 212 state:

Our platform is making money from its CFD business, where the main revenue comes from the spread and the interest swap. 

This essentially means that Trading 212 will make a commission on any CFD trade on their platform, that would be a percentage of the difference between the buy and sell price.

Foreign Exchange Fees:

Trading 212 charge a 0.15% fee for trading stocks that are not in your base account currency.

Share Lending:

Trading 212 do lend shares that are owned by their customers to 3rd parties. They then receive a fee from the 3rd party for this. This is a fairly common way for brokerage providers to make money, and it would not affect the customer. Some Trading 212 customers have been unhappy about this, firstly because it is not possible to opt out, and secondly because many of the 3rd parties who will be ‘renting’ the shares, will be short sellers of the stock, so their motivation would be for the stock price to go down, which is exactly opposite to the interest of the customer holding the share on Trading 212.

Payment For Order Flow:

Some brokers, such as Robinhood in the US, have received criticism for a business model that sends all of the trades made by their customers to high frequency traders before the trades are made – a process called ‘Payment for order flow’. Trading 212 are based and regulated in the UK, a territory where this practice is not permitted, so they do not do this.

Some investment apps use Open Banking to take savings directly from your bank account. Check out our reviews of Plum, Chip and Moneybox.

Who is Trading 212 for?

Trading 212 is available to customers in over 100 countries across the world, including the UK. Residents of the US or Canada currently cannot open accounts. You must be over 18 to open an account.

Overall, Trading 212 can be a low-cost solution for customers who wish to start trading, and potentially do not have much, if any, experience. Costs for trading have traditionally been rather complex, and Trading 212 have simplified this with their mostly fee free approach. In addition, they have more informational and educational content on their app and social media channels, which suits newcomers to trading. They even have a feature whereby you can make trades with a virtual £50,000 of capital so you can practice.

In addition, Trading 212 offers a way to try CFD trading, but beginners should be wary as this is a far more complex and risky investment practice than simply buying stocks and shares.

Victims of their own success?

In early 2021, Trading 212 stopped accepting new customers, and this remained the case for over a year.

As of April 2022, it is possible to set up a Trading 212 account straight away if you are based in a country that they operate in which is outside of the UK. If you are in the UK, then you can now join the waiting list to open an account. Trading 212 did send a Tweet stating that users can join the waiting list again on the 14th February 2022, but it is difficult to find an answer as to how long it would take to have the account activated. Trading 212 state that they are opening a limited number of accounts each day.

The reason for this limiting of customer onboarding appears to be simply that they could not handle the massive influx of customers. It appears that during the ‘meme stock’ craze of early 2021 – where customers were flocking to buy stocks such as Gamestop and AMC, meant that an enormous number of first time investors were seduced by the offer of a free trading platform, and rushed to set up accounts on Trading 212.

Interestingly, there are signs that Trading 212 were struggling to cope with the amount of new customers even before that time. If you look at Trading 212’s Youtube channel, they have over 850,000 subscribers –  number that would make many a mid-sized Youtube creator very happy. However, if you look at the dates on the videos, there was a large gap. In December 2019, they released a video about fractional shares, which gained a staggering 27 million views. They then stopped releasing videos on their channel until February 2022 – over 2 years later. Maybe this is an indicator of them having simply too much success – and the videos were driving too many customers for them to handle?

If you are determined to get a Trading 212 account, then it is best to join the waiting list, but don’t let that stop you trading – there are several other trading platforms out there, such as:

Freetrade

Etoro

Hargreaves Lansdown

Is Trading 212 safe?

This is a multi-faceted question, depending on what your definition of safe is, and which way you look at it!

In terms of the company itself, Trading 212 has all of the safeguards that can be expected from a trading platform – which are:

  • Regulated by the Financial Conduct Authority (FCA) in the UK.
  • All customer funds held by Trading 212 are kept in accounts completely segregated from the business funds.
  • These accounts are fully covered by the Financial Services Compensation Scheme (FSCS), so in the case of the business failing, each customer is protected up to a maximum of £85,000.

However, trading stocks, shares and ETFs is by its very nature risky. Customers have to understand that stocks are just as likely to go down as well as up, and the potential is always there to lose all of the money you have invested.

To take this a step further, Trading 212 also allow you to trade Contracts for Difference (CFDs). CFDs are a complex financial instrument, and whilst there is the potential to make far more than your initial investment, the opposite is also true. That is, you could potentially owe more money than your initial investment – something that is not possible when you are just investing in shares or ETFs. In addition, Trading 212 have stated that between 68-79% of their retail investors (i.e. you and I) lose money overall when trading CFDs.

Trading 212 do have safeguards in place, such as the Negative Balance Protection Policy, and state:

As a retail client, you will never lose more funds than you have initially deposited to your Trading 212 account. Due to the Negative Balance Protection policy, we will send a margin call, when you have lost your available funds. Once your positions are no longer able to be maintained, we will automatically close them and protect you from going into a negative balance. 

Full statement can be found on the Trading 212 website.

So overall in relation to safety, Trading 212 is a properly set up and regulated entity with safeguards in place, so you can be as assured as you would be with any other similar product that your money is safe.

However, potential investors should always bear in mind the risks of trading stocks, shares and ETFs, and especially CFDs!

Trading 212 Reviews – what are people saying?

Trading 212 has a rating of 4.5 out of 5 – Excellent – on Trustpilot. Satisfied customers are very happy about the ease of use of the app and the customer service. 9% of the reviews give the company 1 out of 5 – Bad. These users are often upset about certain Trading 212 practices such as share lending, differences between the share prices shown on the app and those that can be seen elsewhere, and the difficulty of withdrawing funds.

Trading 212 has a dedicated subreddit on Reddit, r/trading212 – that has over 45,000 members. It is definitely a good place to spend some time reading for anyone thinking of opening a Trading 212 account.

Trading 212 Alternatives

As it is currently not that easy to open a Trading 212 account if you are in the UK, it is good that there are alternatives available.

Trading 212 Pros & Cons

Pros

  • The trading of stocks, shares and ETFs on Trading 212 is free (with some caveats) so it is a good entry into investing for beginners.
  • They provide more information and education relating to shares and trading than some competitors.
  • If you do wish to trade CFDs, then Trading 212 is a simple way to do so.
  • Larger selection of stocks and ETFs than on some similar apps.

Cons

  • Waiting list for users from the UK to create an account.
  • CFDs are a risky and complicated investment. Trading 212’s business model relies on converting users from their free stock trading platform to their CFD platform, so inexperienced investors should be cautious.

Conclusions

Trading 212 is a good first step into trading for the beginner investor, as it has an easy to navigate platform, and almost free trading. Bear in mind however, that their business model is based on converting users to use their CFD trading system, which is a far more complex trading area, and far more profitable for them. If you do wish to trade CFDs, then Trading 212 can also be a good way to enter that world, although you need to clearly understand the risks of doing so. For those investors who only want a simple and low cost way to trade shares and ETFs etc however, Trading 212 is definitely a good option – although UK customers may have to wait a little while to get their accounts activated at the current time.