Commission-free broking app targets millennials

Investors in the UK will be able to trade shares for free for the first time as a new app targeted at millennials aims to shake up stockbroking.

Freetrade, which is set to launch later this year, will offer commission-free trading for those with portfolios smaller than £10,000, in the hope of encouraging young investors to sign up.

Adam Dodds, Freetrade founder, said the stockbroking industry was “tired” and the market had not seen a new entrant for some years.

“Everyone in the UK right now is designing products for a 50-year-old man with a large portfolio,” said Mr Dodds. “If you know how to use an iPhone you can use our product.”

The company’s low-cost trading policy undercuts the deal offered by other UK retail stockbrokers, which typically charge commission for share trading.

A single trade through Hargreaves Lansdown, the UK’s largest retail broker, costs up to £11.95, although this price drops with frequent trading.

The free stocks available for trading over the app include cheap index-tracking ETFs.

The company said it is operating a “freemium” business model, whereby basic services are offered for free while a so-called “premium” service is charged for. The model is popular among tech start-ups like music streaming app Spotify and online retailer Amazon, both of which offer extra services to paying subscribers.

Among its premium services will be immediate execution trading — its free trading executes investors’ orders simultaneously at the end of the day — and the ability to hold investments in an Isa wrapper.

An Isa account with Freetrade comes at a flat subscription fee of £3 a month. Most brokers charge a percentage of the assets invested in an Isa, ranging between 0.2 to 0.5 per cent of the fund’s value.

Wealthier customers will also be charged to use the service. Those with portfolios in excess of £10,000 will be charged 1 per cent a year.

Freetrade, which has said it will make a loss on its free-trading customers, has signalled that aside from premium services it hopes to make money through foreign exchange conversions.

Brokers must exchange currencies on behalf of UK investors in order for them to trade shares in overseas companies. Mr Dodds said most brokers charged excessive amounts for currency exchange.

Globally, Freetrade is not the first app to offer free stockbroking — it follows on the heels of European company iDealing, which offers free trading of Euronext stocks, and US app Robinhood.

Robinhood is currently only available to US investors, despite a four-month foray into China last year. The company partnered with Chinese company Baidu in June 2016 in an attempt to offer Chinese investors to the US market.

In October 2016, the China Securities Regulatory Commission banned “unlicensed” Chinese companies from “engaging in business with US brokerages”, according to Robinhood. The company was forced to end its partnership with Baidu.

Robinhood has raised around $66m from backers including Index Ventures and Google Ventures.