Trading212 - why do they cater for ex-pats where nearly every other UK broker will not?

EdGasketTheSecond

Trying to find a broker for an ex-pat investor who has UK Bank account and an address that can be used but is resident in Hong Kong. They have a lot of money in the UK, mostly in National Savings products that now aren't paying anything worthwhile. I found Degiro but they are Netherlands based and there is no FSCS protection. Trading212 are UK based, have FSCS protection and will accept Hong Kong residents and also charge no commission??

So how is that a seemingly cheap and cheerful outfit like Trading212 can offer share trading to ex-pats when the likes of iWeb, AJ Bell, HL won't entertain it? Is Trading212 safe or likely to go the way of SVS and Beaufort as they are not charging commissions?

Thrugelmir

Trading 212 is run from two registered companies. One in the UK and the other in Bulgaria. 

EdGasketTheSecond

Is that supposed to somehow answer the question? If so please can you elaborate?

Thrugelmir

Which Company will you be a client of being an Ex Pat? 

EdGasketTheSecond

The UK one I presume; why would it be the Bulgarian one?

VXman

If the expats money is in UK banks then there is nothing to stop them trading in any UK based company..

Funnily enough I have just returned from working in Hong Kong for 3 years. I just transferred my spare HKD to my UK bank whenever rates were good and then traded  in UK companies from my UK bank account.....or do  they not have a UK address? Doe one need one? If that is an issue could they not 'borrow' one?

bowlhead99

EdGasketTheSecond said:

Trying to find a broker for an ex-pat investor who has UK Bank account and an address that can be used but is resident in Hong Kong. They have a lot of money in the UK, mostly in National Savings products that now aren't paying anything worthwhile. I found Degiro but they are Netherlands based and there is no FSCS protection. Trading212 are UK based, have FSCS protection and will accept Hong Kong residents and also charge no commission??

So how is that a seemingly cheap and cheerful outfit like Trading212 can offer share trading to ex-pats when the likes of iWeb, AJ Bell, HL won't entertain it? Is Trading212 safe or likely to go the way of SVS and Beaufort as they are not charging commissions?

They subsidise the cheap trading and nominee service by making money from large volumes of CFD customers, for whom "76% of retail investor accounts lose money when trading CFDs with this provider." While they can hedge out the CFD holders' positions they make profit on the unhedged ones where clients lose, and still have some exposure on their own balance sheet, especially when offering guaranteed stops etc. But there is money in CFD trading and increasing their potential customer base by welcoming overseas investors is one way to increase profits - the more the merrier.

There is not a lot of money in basic brokerage and nominee services. Especially not if you are going to offer to place and settle all the customer trades and hold the resulting assets for free. So AJB and IWeb are not going to give it for free, and won't generally have the appetite for increased risk and hassle that comes with taking foreign resident customers.  However, T212 do, with the hope that they can get enough cross subsidy from other service lines and income streams to keep offering the sharetrading stuff with nominal cost.

If you are concerned about T212 offering an unsustainably unprofitable free service that eventually collapses because of risks or failures elsewhere in its business (or simply decides to get out of the brokerage game), you could note that some of their practices in relation to the share trading side (for example offering fractional shares) would make it more difficult for an administrator or liquidator to arrange a seamless transfer of assets for the whole client book to another provider. 

SVS took a year or more for clients to regain access to their assets; the more complex the client base and the assets administered, the longer it will take and fewer interested parties wanting to take over the work.  A number of brokers wouldn't have the systems to be able to handle incoming transfers of large number of customers with fractional holdings of foreign shares - but even if your friend doesn't want that functionality, his business will be mixed in with the 'rest of the mess that needs sorting' in event of failure.

Your friend could also note that Hong Kong is a well developed financial centre and investors will find local brokers there without too much trouble. It is not too difficult to move money from the UK to a HK bank if you are resident there.

Voyager2002

bowlhead99 said:

They subsidise the cheap trading and nominee service by making money from large volumes of CFD customers, for whom "76% of retail investor accounts lose money when trading CFDs with this provider." While they can hedge out the CFD holders' positions they make profit on the unhedged ones where clients lose, and still have some exposure on their own balance sheet, especially when offering guaranteed stops etc. But there is money in CFD trading and increasing their potential customer base by welcoming overseas investors is one way to increase profits - the more the merrier.

That seems to suggest that those of us who are not interested in CFD trading should seriously consider investing with T212 in order to benefit from a subsidised service.

masonic

EdGasketTheSecond said:

The UK one I presume; why would it be the Bulgarian one?

It is the company's implementation of the KYC (and other FCA) regulations that is often cited as the reason providers cannot offer accounts to UK emigrants. Though some companies clearly don't have a problem with this - for example SVS Securities had a lot of non-UK resident clients. I don't know what the regulatory regime is like in Bulgaria but it may be more relaxed. It would be an assumption, however, that non-UK resident investors would be signed up to the Bulgarian company.

bowlhead99

Voyager2002 said:

bowlhead99 said:

They subsidise the cheap trading and nominee service by making money from large volumes of CFD customers, for whom "76% of retail investor accounts lose money when trading CFDs with this provider." While they can hedge out the CFD holders' positions they make profit on the unhedged ones where clients lose, and still have some exposure on their own balance sheet, especially when offering guaranteed stops etc. But there is money in CFD trading and increasing their potential customer base by welcoming overseas investors is one way to increase profits - the more the merrier.

That seems to suggest that those of us who are not interested in CFD trading should seriously consider investing with T212 in order to benefit from a subsidised service.

In a lot of models there are ways to use the service while the costs are borne by others. For example those of us who want to hold funds and do not have a large funds portfolio should use a platform where account maintenance and subscription and redemption and customer service costs are covered by a percentage based fee, so that the biggest customers pay the revenue that can allow small investors to invest for a pittance.  The platform hopes the small customers get bigger and become less troublesome over time.

Similarly with T212 you could sign up and trade for free and they hope that you might be tempted to try out their more profitable services but know that some people won't be, and meanwhile their business gets bigger (more economies of scale) so that it might have value for them to eventually sell out to someone else at a high price with the acquirer hoping to better monetise the customer base. You're buying a loss leader product. Unlike some other relatively new market entrants they do make profits - you can see from their published financials, next ones will need to be filed this month - but they come from CFD; basic sharetrading is relatively new.

As you're buying a service that doesn't cost you money and doesn't make them money, if they cease to offer it, you can shrug and say ah well it was good while it lasted. But if you had large amounts of assets on the platform at the time and you lost access to them for some time in some sort of disorderly failure of the business, you might not just simply shrug.

dfchk

No tax on capital gains or dividends in Hong Kong. Would it not be more beneficial to invest in HK?
Andrew Hallam's book Millionaire Expat is a good starting point to maximise investments while in HK.