Freetrade is a startup that offers commission-free stock investing applications. The platform allows customers to invest in the stock market with no commissions or fees.
Freetrade connects them to a network of independent financial counselors, allowing them to save on brokerage and trade fees and thus boost their investment returns.
The low costs of Freetrade allow people to invest without paying any fees, unlike most stockbrokers.
Freetrade business model is based on a freemium model, which means the Freetrade General Investment Account is always free, but other account types may incur a fee.
What is Freetrade?
Freetrade is an online brokerage platform that enables users to buy and sell financial products using mobile applications for Android and iOS.
Freetrade earns money through a monthly subscription service, currency conversion fees, and also from interest on funds held in user accounts. The Freetrade business is based on the freemium model.
Freetrade was founded in 2016 and has since become one of Europe’s fastest-growing online brokerages. Freetrade has raised about $97 million in capital to date.
How Does Freetrade Work?
Freetrade is a financial technology firm that allows its users to purchase and sell equities, exchange-traded funds, mutual funds, SPACs (special purpose acquisition companies), and REITs (real estate investment trusts).
You can access the trading platform only via mobile applications on Android and iOS devices.
Freetrade allows users to buy and sell over 4,000 stocks, 200 exchange-traded funds, 160 real estate investment trusts, and 140 investment trusts.
The company offers individual savings accounts (ISAs) in addition to investment opportunities. The UK’s capital gains tax is gradually lowered using these accounts, encouraging long-term investment.
Freetrade also established a tax-efficient pension savings account (SIPP), which gives clients an additional tax benefit on salary contributions.
Freetrade also provides users with a comprehensive knowledge library that informs them on all aspects of financial securities.
The Financial Services Compensation Scheme (FSCS) provides up to £85,000 (about $118,000) of insurance coverage for Freetrade assets if Freetrade ceases to operate.
How Does Freetrade Make Money?
Freetrade makes money by charging its subscribers a monthly subscription fee, charging users for currency conversions, and by paying users for interest on funds held in their accounts.
Freetrade business model is based on a freemium model, which means nearly all of its features are available for free. However, customers who want a more advanced experience can subscribe to a premium service.
The current revenue sources of Freetrade are:
- Monthly fee of £3 for Freetrade ISA
- £9.99/month for Freetrade Plus
- The Freetrade SIPP costs £9.99 a month
- Each US order will be charged 0.45% of the base FX rate
- A small amount of interest is earned by banks on customers’ cash
Let’s look at the various revenue streams of Freetrade in the section below.
Freetrade earns most of its revenue from the monthly membership fees that customers pay to access premium accounts.
A variety of features are available with these premium accounts, including:
- Customer service priority
- Order limit
- Eliminate losses
- A selection of stocks that are curated and available to all users
- Interest on cash of 3 percent (more to come)
… As well as many others. Customers can open stock and share an ISA account for £3 per month or a SIPP account for £9.99 per month.
Monthly memberships are designed to encourage users to return to the platform more frequently. This can lead to additional cross-selling opportunities in the future. Many FinTech startups have followed the same strategy, including Acorns, Revolut, and Dave.
Interest On Cash
The Freetrade Plus app allows users to earn up to 3% interest each month on their deposit money.
The interest payment is made each month. Freetrade determines how much to give out based on the average balance of the user each month.
Freetrade is no longer just about giving cash away. Instead, these accounts are lent out to other financial entities, such as banks.
The entities then repay the borrowed money with interest. As a result, the Net Interest Margin, referred to colloquially as the interest rate, has stabilized at 3.35 percent.
Currency Conversion Fee
Freetrade also earns revenue from currency conversion fees charged on all trades conducted in currencies other than British pounds.
A cost of 0.45 percent is charged plus the spot exchange rate of the firm’s currency exchange partner.
What is the Funding and Valuation of Freetrade?
Crunchbase reports that Freetrade raised a total of $84.9 million in venture capital funding in nine rounds.
Dave Bailey, L Catterton, Crowdcude, Left Lane Capital, and S. Catterton are notable investors in Freetrade.
What is the Valuation of Freetrade?
Freetrade is currently valued at $366 million after a Series B financing of $69 million in March 2021.
TechCrunch reported that Freetrade earned $1.4 million in December 2020. The firm’s annual sales amount to approximately $16.8 million (even though the previous months were likely lower).
Success Story of Freetrade
Freetrade was founded in London, England, in 2016 by Adam Dodds, Andre Mohamed, Davide Fioranelli, and Viktor Nebehaj (who joined later).
The four founders obtained significant corporate experience before founding the company. For example, CEO Dodds worked at KPMG for six years as a finance manager before meeting Fioranelli.
Mohamed has worked in numerous financial organizations throughout London for the past twenty-five years.
Lastly, Nebehaj spent seven years at Google and held several executive roles at startups before setting up independently.
FinTech businesses such as Monzo and Revolut were gaining traction in the United Kingdom at the time. In addition, people were becoming accustomed to conducting all of their banking online or via an app.
Legacy brokerages, on the other hand, remained firmly rooted throughout the twentieth century. As a result, many companies charged up to $12 per trade, including Hargreaves Lansdown.
The American-based Robinhood allowed them to disrupt the sector as an unknown company by providing them with a template.
The team chose not to seek funding from traditional investors (such as venture capital firms), instead crowdfund their proposal.
The team’s initial crowdfunding campaign, which was housed on Crowdcude, aimed to raise £100,000 but ended up raising £169,980.
The funds enabled them to gain essential FCA approval and launch the product’s first beta version, drawing over 5,000 customers to their waiting list.
They started their second crowdfunding campaign a year later, in March 2017, asking for £300,000 – and ended up generating about £1.1 million.
However, it required another round of funding from the crowd (£3.5 million in July 2018) to get started.
Freetrade began enrolling its 60,000-strong waiting list in October 2018 after a lengthy stint in private beta. Regrettably, not everything went as planned.
Just as Freetrade went public, co-founder and chief technology officer Andre Mohamed left the company.
He then joined rival Revolut as Head of Wealth & Trading Product, developing a stock trading tool. Ian Fuller, who joined the company as Vice President of Engineering, succeeded him.
Fortunately, Freetrade’s expansion continued unabated. In June 2019, it completed another crowdfunding round, shattering previous records in the process.
Freetrade became the fastest Crowdcude startup to raise £1 million – in just 77 seconds.
A few months later, it closed its first institutional round, raising £12 million from Draper Esprit (an investor in TransferWise, Revolut, and Trustpilot, among others) (equally split between Draper and its existing crowd investors).
There were over 50,000 users on the platform at that point. Robinhood is also considering expanding into the United Kingdom, which would further increase the market’s competitiveness.
However, 2020 started with a less optimistic tone. Numerous studies have emphasized the firm’s apparent “culture of terror” fostered by its leadership.
Freetrade’s workforce turnover reached up to 50% as a result of this policy. (Almost every week, one person resigned or was fired).
It was a very successful year for Aptean Inc. in 2020, regardless of the high turnover. The Coronavirus outbreak forced lockdown orders and stimulus checks on the stock market, which led to thousands of (mostly young) people entering the markets for the first time.
Freetrade grew from 50,000 customers to over 300,000 by the start of 2021. Many of the company’s early crowd investors became millionaires after a $69 million Series B investment in April 2021 (which valued the company at $366 million).
Freetrade is currently focusing on extending its app across other nations, including Australia and Sweden, on fending off rising competition from BUX and Trade Republic.