Trading 212 Business Model | How Does Trading 212 Make Money?

Trading 212 was founded in Bulgaria in 2005 but opened up to the UK market in 2016. In 2017 it launched zero-commission share trading.

There are 15 million downloads and more than 200,000 reviews on its mobile app, making it a top download in the UK. 

Trading 212 allows users to invest in stocks, exchange-traded funds (ETFs), futures contracts, gold, cryptocurrencies, and an Individual Savings Account (ISA) all in one place. 

You can also practice trading stocks or CFDs with simulating £50,000 if you are uncertain of your ability.

The Trading 212 Business Model is based on the differential between the highest or ‘offer’ price at which an investor can purchase an asset such as a share and the lowest or ‘bid’ price at which they can sell it. 

A sale is typically discounted for investors, while a purchase is typically priced at a premium. There are likely to be more ‘paid for’ features added to the site in the future, providing another lucrative revenue stream.

What is Trading 212?

Trading 212 is an investment and trading platform that offers CFDs, ISAs, and other investment products through their online brokerage firm. You can buy or sell stocks, commodities, and currencies through these sites, among other things.

Trading 212 earns money through transactions, spreads, overnight and weekend fees, and currency conversion fees.

Trading 212 was founded in 2004 and is now one of the most dominant online brokerage firms in Europe. There are currently more than 1.4 million registered traders on the site.

How Does Trading 212 Work?

Trading 212 provides customers with access to various financial instruments such as stocks, exchange-traded funds (ETFs), foreign exchange, and indices.

The Trading 212 platform offers three unique investment products: Invest, CFDs, and ISA. You can trade more than 10,000 stocks and ETFs commission-free with Invest.

Customers can also invest in fractional shares and set investment goals and then let the platform invest on their behalf.

The Financial Conduct Authority regulates and authorizes Trading 212. (FCA). It covers funds in a separate account held up to £85,000 by the Financial Services Compensation Scheme (FSCS).

CFDs allow customers to trade contracts for difference (CFDs), which are essentially bets about whether a certain financial asset price will increase or decrease. 

CFDs are the most popular instrument for trading stocks, commodities, and futures, but 76% of investors lose money on their platform, according to Trading 212.

CFDs are used for trading currencies, stocks, commodities, and indices. There are various options in Trading 212 that help limit losses, such as preventing accounts from turning negative or automatically halting investments if a specified loss percentage is reached (also called a stop-loss alert).

Its ISA (Individual Savings Account) product is a tax-advantaged account that allows consumers to invest after-tax funds. The account is tax-free for capital gains and dividends. The management of an ISA account is free at Trading 212.

A YouTube channel, a community forum, and a blog are among the company’s many instructional tools.

Trading 212 is currently available in more than a hundred countries worldwide, including Australia, Germany, the Netherlands, Spain, and the U.K. 

The features and items that are accessible differ according to the country in which the user resides.

Trading 212 products are available through Trading 212’s website and mobile phone applications (Android and iOS devices).

How Does Trading 212 Make Money?

Trading 212 earns money through transactions and spreads and overnight and weekend fees, and currency conversion costs.

Trading 212 generates revenue via its CFD business, with the majority of its revenue coming from spread and interest swap transactions.

The firm anticipates that as our Invest service grows, we will be able to monetize some of its sophisticated capabilities, although this is not our primary objective at present. Our first objective is to give outrageously good service for nothing.

Other platforms that claim to offer free trading provide a much worse service (for example, free transactions are not done immediately but at the end of the day) or restrict the number of free trades. And they are all squandering venture capital funds.

Trading 212 has been profitable for the past 15 years (if long-term investors are concerned).

Here’s a closer look at each of them.

Spreads

The spread is the difference between the bid (SELL) and asks (BUY) prices for any financial asset in which the user trades. When a user buys or sells an asset, spreads are applied.

A user can create BUY positions, and the backend system will automatically convert them into SELL positions. Trading 212 then exits the position at a higher price to make a profit.

Trading 212 earns a profit of 2 percentage points if the bid price is 1.2637 and the asking price is 1.2639.

Trading 212 takes care of order execution (as opposed to Invest sales, which use a stock exchange to route orders). Spreads earned on CFD products are reserved for Trading 212 customers.

The spreads for CFDs and Invest-equivalent products at eToro are higher than those at other sites like eToro.

The broker profits from depreciating CFD positions, in addition to commissions. Let’s say you purchase a $100 stock.

You decide to close your position at the end of the trading day (to avoid rollover costs; more on that in the next chapter) at the $80 price level due to the short-term nature of CFDs.

Trading 212 now has a profit of $20 because it holds the underlying asset (the CFD that represents that stock).

Contrary to that, trading CFDs can be extremely dangerous. CFD platforms will be required to publish the number of successful traders on their platforms in 2020 under UK regulations.

Trading 212 reports that 76 percent of retail traders lose money when trading CFDs. eToro investors share the same experience as 67% of all investors.

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Currency Conversion Fee

Trading 212 began charging currency conversion fees in April 2021. These conversion costs are charged if a customer trades a stock or ETF in a currency other than the one specified in their default account.

Trading 212 charges a 0.15 percent currency exchange fee. To be sure, the price is still quite modest in comparison to other UK-based online brokerages.

Currency conversion charges are assessed on both BUY and SELL orders. Additionally, dividend payouts may be affected by currency fluctuations.

The 0.15 percent fee applies to both the Invest and the ISA accounts. A currency conversion fee of 0.5 percent is applied to the CFD product.

Overnight & Weekend Fee

Trading 212, like many other CFD trading platforms, imposes so-called overnight and weekend trading fees (also referred to as interest swap rates or rollover costs).

Users who hold a CFD position overnight or during the weekend must finance it to keep it open.

Trading 212 charges users a quasi-interest rate for loaning out money to keep the trades open.

The swap rate is determined by many criteria, including the type of asset owned (forex, stocks, etc. ), the nature of the position (BUY vs. SELL), and the total volume of trading (exemplified by the amount and value of assets that are being held).

The conditions of the general market can also affect the interest swap rates. An asset that is considered hazardous, for example, will result in a higher margin rate.

You can see Trading 212’s swap rates in more detail here.

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Success Story of Trading 212

Ivan Ashminov and Borislav Nedialkov founded Trading 212 in London, United Kingdom, in 2004.

The company was formed by two Bulgarian natives operating it out of their garage under Avus Capital’s name.

Trading 212 began as a forex trading platform, allowing investors to buy and sell currencies (such as the Euro and US Dollar).

The company’s early years are little known because its founders did not rely on venture capital and, with it, TechCrunch reports.

The first public milestone occurred in 2011 when Bulgaria’s Financial Services Commission gave Avus Capital a brokerage license. 

Previously, actual order execution was delegated to third partners.

Trading 212 took the initial step toward becoming the trading platform it was today in October 2012. 

It did so by launching its first-ever mobile application, enabling iPhone customers to execute transactions directly from their phones. A browser extension was introduced a few months later.

Trading 212 quickly established dominance in its native market (and neighboring Eastern European peninsula countries) but soon turned its attention to other wealthy markets. FinTech is often referred to as Europe’s Mecca in the United Kingdom.

THEREFORE, the UK authorities were not surprised when Trading 212 (through Avus Capital) received regulatory approval in October 2014. 

The next year, the firm established a presence in London. At the time, the platform had over 200,000 users.

Trading 212 entered the US market for the first time in 2016 with the launch of Tradebird, a social news site that aggregates crowdsourced financial market news. Trading 212 also became the most downloaded FX app in the UK shortly after its launch.

That was intensified when Trading 212 upset the stock trading market in June 2017 (the company had previously provided the option to trade stocks and cryptocurrencies via CFDs) by becoming the UK’s first zero-fee share trading platform.

Users were initially allowed to make up to ten trades for free each month (with a maximum value of £10,000 per transaction). If you make a trade above that level, you will be charged £1.95 + 0.05 percent.

A few weeks later, the business stated that it would eliminate commissions on FX and cryptocurrency trading (both of which were implemented in February 2017). 

Trading 212 eventually revealed in September 2018 that the 10-trade limit would be lifted, allowing users to trade an unlimited quantity of stocks and other financial assets.

2020, in particular, was a tremendously successful year for the London-based firm. 

Several online trading platforms, such as Robinhood and Stash Invest, saw trade volumes increase dramatically due to stay-at-home orders and stimulus checks. Trading 212 added nearly a million new users in 2020 alone.

Trading 212 faced several obstacles despite its rapid growth (despite remaining completely self-funded). 

A suspension of Bitcoin trading (through CFDs) in November 2017 caused traders to be unable to cash out their earnings.

The gang of dealers together claimed to have lost approximately $13.2 million. The majority of the affected dealers later settled with the corporation.

Trading 212 was one of many trading platforms participating in buying meme stocks, such as AMC or GameStop, in January 2021. Additionally, the corporation stopped creating accounts.

Trading 212 now employs over 200 people and has offices in several countries worldwide, including Bulgaria, Germany, and the United Kingdom.

Is Trading 212 safe?

Trading 212 is regulated by the Financial Conduct Authority, which means it must take reasonable steps to safeguard your funds, such as maintaining them in a separate client account. 

Trading 212 is additionally insured by the Financial Services Compensation Scheme up to a maximum of £85,000 in case of insolvency. It also has a variety of security mechanisms to flag any flaws and protect clients.

Investors should understand that they are risking their money in any investment they make, and share values are just as likely to fall as they are to rise.

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