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Degiro vs trading212(invest)

Amouar

Hi all,

I have an account with Degiro since they started accepting Irish customers, but i recently came across trading212(invest) which seem to be a much better option as they don't appear to charge any trading fee.

They look too good to be true, therefore I wanted to check if anyone has any experience using trading212(invest) and whether it's worth moving from Degiro to them.

Thanks

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JMMCapital

I would not recommend Trading212. They are for trading in CFDs which are an extremely risky form of derivative and highly speculative stick with Degiro.

Amouar

JMMCapital wrote: »

I would not recommend Trading212. They are for trading in CFDs which are an extremely risky form of derivative and highly speculative stick with Degiro.

They have 2 separate platforms, one for CFDs and one for stocks and ETFs called "Invest".

I was asking about "invest" and have been reading a few reviews online, it seems like the main issue is the low guarantee of 20k Euros as they are based in Bulgaria.

outonawing

According to their website they are authorised and regulated by the FCA and your funds are guaranteed up to £85,000

https://www.trading212.com/en/Safety-and-Security

Amouar

outonawing wrote: »

According to their website they are authorised and regulated by the FCA and your funds are guaranteed up to £85,000

https://www.trading212.com/en/Safety-and-Security

What's the catch then?

Seriously thinking of moving to them, as Degiro is charging me a lot in dividend fees. They also allow funding the account with a bank card, therefore it's much quicker than the bank transfers.

I'm using Degiro's custody account because i don't like the idea of having stocks I own given to those that want to short them. Does trading212 allow stock shorting? If so, i might just stick with Degiro for now.

Anyone already using trading212 (Invest) and can share any issue that they might be facing?

Thanks

dotsman

Amouar wrote: »

What's the catch then?

That's the million dollar question.

How do they make their money? A lot of cowboy operations in finance promise free or below-cost. But if you cannot see how they make a profit from up-front fees, then you can bet your ass they make their money by screwing you royally.

Best avoided until that becomes clear.

robman60

dotsman wrote: »

That's the million dollar question.

How do they make their money? A lot of cowboy operations in finance promise free or below-cost. But if you cannot see how they make a profit from up-front fees, then you can bet your ass they make their money by screwing you royally.

Best avoided until that becomes clear.

They make their money on the CFDs which they also offer. I have been using them for the ISA and it's fully regulated by the FCA, so happy to go with them.

I've found it to be a great platform although when I did contact them about a referral bonus they had they were less than useless but the app itself has been amazing. Particularly like the fractionals as I've been able to diversify easily with limited funds.

Amouar

robman60 wrote: »

They make their money on the CFDs which they also offer. I have been using them for the ISA and it's fully regulated by the FCA, so happy to go with them.

I've found it to be a great platform although when I did contact them about a referral bonus they had they were less than useless but the app itself has been amazing. Particularly like the fractionals as I've been able to diversify easily with limited funds.

What's the benefit for having an ISA account Vs Invest account for Irish residents?

outonawing

Amouar wrote: »

What's the benefit for having an ISA account Vs Invest account for Irish residents?

I imagine that you have to be a UK resident to open an ISA account, even if you don't, you can't avail of the tax benefits associated with one.

robman60

Amouar wrote: »

What's the benefit for having an ISA account Vs Invest account for Irish residents?

No advantage, don't even think you can have an ISA in Ireland. Im living in the UK so that's why I'm using it. Otherwise the invest account is what you need.

Amouar

robman60 wrote: »

No advantage, don't even think you can have an ISA in Ireland. Im living in the UK so that's why I'm using it. Otherwise the invest account is what you need.

Do you know if they lend your shares to those that want to short them?

Jim2007

Amouar wrote: »

Do you know if they lend your shares to those that want to short them?

Your question does not make any sense... the whole point of short is to sell shares you DON'T HAVE on the expectation that you can buy them on the market later at a lower price. Give your shares to anyone would make not sense, not to mention being illegal.

Jim2007

Amouar wrote: »

What's the catch then?

- UK based guarantee, for a start, after the end of the year you may have very little rights to that guarantee

- The company may not be able to offer services to EU citizens after the end of the year or may only do so on a restricted basis.

I would not go setting up something major in the UK until we see where it is going....

Jim2007

robman60 wrote: »

They make their money on the CFDs which they also offer.

Do you have a reference for that on is it just an opinion. In my experience, I would expect that they make most of their income form commissions on trade flow - a cheap low risk option.

Amouar

Jim2007 wrote: »

Your question does not make any sense... the whole point of short is to sell shares you DON'T HAVE on the expectation that you can buy them on the market later at a lower price. Give your shares to anyone would make not sense, not to mention being illegal.

You didn't understand my question. Brokers that offer short selling, they actually take shares from their customers that own them and give them to those that would like to short them.

This is why Degiro offers an account called "Custody", meaning that they do not give your shares to shorters if you chose a custody account, but they charge much more fees, like dividend processing fees etc.

Below is what Degiro have on their website about the Custody account:

Custody

A Custody profile is different from a Basic profile in that the securities are held separately from the lending pool of DEGIRO clients’ securities and are thus unable to be loaned to third parties. Debit Money, Debit Securities, and Derivative trading is not available with a Custody profile and you cannot change to an Active, Trader, or Day Trader account. A Custody Profile has different conditions and fees. However you will still benefit from our low transaction costs and save money through trading with DEGIRO.

Supercell

I opened an account with Trading212 before the corona crash and as a result never used it (averaging down current positions with new funds).
The two main reasons behind opening the account were 1) no fees and 2) they don't have stupid "ethical" restrictions - for example on Degiro you cannot buy LMT for ethical reasons but you can buy plenty of ETF's that do contain it. If I want to be an ethical investor that should be my choice and not foisted on me by some fcunking woke type.

/ends rant.

Amouar

Found this in their terms of business

10.15. You are not permitted to Short Sell. This means that you cannot give us an Instruction to sell an Investment that you do not own at the time of the sale and that is not held on your account whether settled or unsettled at the time of sale.

I think that i will open an account with them and keep my Degiro account aswell.

sk8board

Am I correct to assume:

1. If you’re only buying ETFs, then the shorting of shares isn’t an issue and a basic a/c is just as safe as a custody one

2. The bank guarantee scheme protection of €20k on DEGIRO is only for cash left in the a/c uninvested, and doesn’t mean your investments are unprotected above that amount.

3. You still own your investments irrespective of the broker going bust - their book of business would simply transfer out to another broker, or you’d get the option to move it yourself

All in all, degiro is a pretty safe platform for the amateur etf investor to use.

Jim2007

Amouar wrote: »

You didn't understand my question. Brokers that offer short selling, they actually take shares from their customers that own them and give them to those that would like to short them.

Yes I understand your question exactly and it still makes no sense. As I said, the point of shorting shares is to sell shares you don't have now on the expectation that you can buy them later on the market at a lower price. The obligation is to deliver up the shares, so borrowing shares is not an option since ownership must change hands.

However, that is not the fully, story - your quote from their documentation raised my interests, so I did some digging and made some enquiries of other in the industry....

I expect you are confusing short shares with securities lending, which is a different exercise altogether and in someways more risking if it goes wrong. It basically means that your instruments are being lent out to other institutions as the basis of a financial product they are selling. If it were to go wrong and there was a domino effect, then you could end up with nothing, since your physical shares are gone!

It would be very interesting to see a court case on this, because there is an ECJ ruling that states any fees generated in a retro type manner are the property of the client and needs to be paid over to the client.

And it does not finish there either, they are also getting commissions from trade flow - they use a small market maker to do this and it is unlikely that you are getting the best price on trades as a result.

There is not such thing in the financial sector as a free lunch. You pay every time in some what or other.

If it was me, there is no way I would go with brokers that engage in securities lending - you have no idea what could go wrong.

Amouar

Jim2007 wrote: »

If it was me, there is no way I would go with brokers that engage in securities lending - you have no idea what could go wrong.

Me neither, and this is exactly why I opted for a Degiro Custody account. Degiro engages in securities lending if you don't opt for a Custody account.

I couldn't find any proof that trading212 engages in securities lending, and if that's the case then i will stick with my Degiro Custody account.

sk8board

Is securities lending an issue with etfs?

Jim2007

sk8board wrote: »

Is securities lending an issue with etfs?

It entirely depends on the ETF and how it is structured. All ETFs are not equal, some use synthetics and leveraging to to produce a result similar to a particular benchmark, while others replicate the holdings. And yes some will borrow securities. Read the fact sheets carefully.

littlevillage

Amouar wrote: »

Do you know if they lend your shares to those that want to short them?

Not sure if anybody here uses Degiro for short selling, but it would be an interesting question to ask them.

My understanding is yes they do allow short selling for their paying clients....and if they do, then they would by necessity have to 'borrow' shares from somewhere to temporarily lend out to short sellers....soo yes, probably they do lend out customer shares to short sellers.

Do you see this as a material risk? I assume they have strict controls in place ?

dotsman

Jim2007 wrote: »

If it was me, there is no way I would go with brokers that engage in securities lending - you have no idea what could go wrong.

Exactly, there is no idea, because nobody has been able to think of any scenario where there would be an issue.

Amouar wrote: »

Me neither, and this is exactly why I opted for a Degiro Custody account. Degiro engages in securities lending if you don't opt for a Custody account.

But is it a rational fear or an irrational fear?

littlevillage wrote: »

Do you see this as a material risk? I assume they have strict controls in place ?

People love to think there is a huge risk, yet nobody is ever able to show a scenario where this is a problem.

Jim2007

dotsman wrote: »

Exactly, there is no idea, because nobody has been able to think of any scenario where there would be an issue.

Hmm... let me clarify what I said, when I said "you have no idea what could go wrong", I meant you literally have no idea what risk you are exposed to, because you have no idea who your shares are lent out to and for what purpose.

As for what can go wrong, the well the simplest would be in the case of an issue with your broker and the is put under some form of legal administration. You have a right to claim you holds and they do not form part of an insolvency, if they are clearly identifiable which the are not if held in a general account of the broker and lent out to a third party. The administrator may even take the view that it is not worth his while to even go after them.

One of the common uses of instrument lending is in the construction highly leveraged products, in other words - derivatives. Now if they lent your instruments to say UBS or CS you might be OK because they have double digit T1s, on the other hand if say something like "WIR Bank Genossenschaft", got them it might not go so well.

And of course, then again the other big borrower are the hedge funds... again if they are lent to a big fund with a significant backer, it may be fine... but it also could go wrong.

We all remember Lehmans, bu we could just as easily be talking about UBS as well, Remember they had a $40b hole that would have seen them go down along with all their associated products. The only thing that saved them was some fancy footwork by the former CEO, who stitched up the Singapore Sovereign fund... and the first we know of it was the when the CEO was escorted out f the building.

At the end of the day it's up to you to decide. If you are happy for them to lend out your shares for a fee and collect a trade flow commission, while you carry the risk with nothing in it for you....then that is your choice.

Amouar

Is it legal for borkers to lend securities if they don't mention that in any of their terms&conditions docs? I'm mostly referring to trading 212(invest) as they don't mention it anywhere.

outonawing

Noted the following on Trading 212's website, wonder which one would compensate Irish investors:

Trading 212 UK Ltd. is registered in England and Wales, authorised and regulated by the Financial Conduct Authority, FCA (Register number 609146).

Trading 212 Ltd. is registered in Bulgaria and is authorised and regulated by the Financial Supervision Commission (Register number RG-03-0237).

For your safety and in compliance with our regulations, all clients’ funds are kept separately in segregated bank accounts and are covered by the Financial Services Compensation Scheme, FSCS (Trading 212 UK Ltd.) and the Investors Compensation Fund, ICF Bulgaria (Trading 212 Ltd).

In the unlikely event of default, the FSCS compensation is up to GBP 85 000 and the ICF Bulgaria compensation is up to 90% (but limited to EUR 20 000) of the client’s funds. Each client will be compensated if one of our companies fails to comply with its obligations to the clients due to its financial state.

dotsman

Jim2007 wrote: »

As for what can go wrong, the well the simplest would be in the case of an issue with your broker and the is put under some form of legal administration. You have a right to claim you holds and they do not form part of an insolvency, if they are clearly identifiable which the are not if held in a general account of the broker and lent out to a third party. The administrator may even take the view that it is not worth his while to even go after them.

I'm sorry, I'm not quite sure what you are saying here.

Jim2007 wrote: »

One of the common uses of instrument lending is in the construction highly leveraged products, in other words - derivatives. Now if they lent your instruments to say UBS or CS you might be OK because they have double digit T1s, on the other hand if say something like "WIR Bank Genossenschaft", got them it might not go so well.

And of course, then again the other big borrower are the hedge funds... again if they are lent to a big fund with a significant backer, it may be fine... but it also could go wrong.

We all remember Lehmans, bu we could just as easily be talking about UBS as well, Remember they had a $40b hole that would have seen them go down along with all their associated products. The only thing that saved them was some fancy footwork by the former CEO, who stitched up the Singapore Sovereign fund... and the first we know of it was the when the CEO was escorted out f the building.

OK, I think one of us has a serious misunderstanding of what's going on. When it comes to short-selling and lending the securities, this is to other customers.

For example, between all their customers, Degiro holds 1 million shares in company X. One of their customers, Bob, wants to short-sell 100 shares in company X. Degiro lends the 100 shares from that pool to enable him to do so.

As with all margin trading, as soon as the price approaches the max/min the customer's equity allows, Degiro will go a margin call, closing some/all of Bob's position before he can get him self into negative territory.

It's not really and different to a bank. They don't necessarily have your physical cash, segregated just for you, stored in a vault, but pooled together with all the other customer's money and the majority lent out, with enough reserves for liquidity.

To me, the kind of events that would trigger an issue here would be the "end-of the-world" type of events that would mean my portfolio has collapsed regardless. For which I am covered for 20K of losses from the Dutch government. The Degiro basic account is not intended for those who are investing hundreds of thousands/millions etc.

Jim2007 wrote: »

At the end of the day it's up to you to decide. If you are happy for them to lend out your shares for a fee and collect a trade flow commission, while you carry the risk with nothing in it for you....then that is your choice.

But there is plenty in it for me in that I pay much lower fees.

sk8board

Isn’t the €20k deposit insurance designed to cover the cash you have uninvested on account?
you can still have millions of euro in an equity portfolio and transfer it out of the broker if they were to cease to exist, via the administrator.

0815g

Joined trading 212 last week, and would be also interested in more input regarding this service. What I saw looks good to me, biggest trading app in UK and Germany and one of the biggest in the world so I wouldn't mind if I'm in the EU or not. Really good ratings on sites like Trustpilot.

I figured out that you can also buy just small parts of big shares (e.g. 0.04 Tesla for 30euro) so you can start kind of your own fee free stock saving plan by saving for example 10x different positions (could be a mix of shares, etf or fonds) with 25-30euro each month or whatever you want. Just put it in every month manually. I see this as a great opportunity

Fol20

Amouar wrote: »

They have 2 separate platforms, one for CFDs and one for stocks and ETFs called "Invest".

I was asking about "invest" and have been reading a few reviews online, it seems like the main issue is the low guarantee of 20k Euros as they are based in Bulgaria.

Does degiro have any guarantee or is it all ok ?