How does Freetrade make money?

  • Freetrade is an English fintech company offering a freemium share dealing service. The company was founded by Adam Dodds, Viktor Nebehaj, and Davide Fioranelli to give ordinary consumers access to brokerage-free trading.
  • Freetrade operates under the freemium model in which users can pay for additional features across three different monthly subscriptions: Freetrade ISA, Freetrade SIPP, and Freetrade Plus.
  • Freetrade also makes money via currency conversion fees and the interest it collects from the funds it loans to other institutions. The latter is otherwise known as net interest margin and in the United Kingdom averages 1.3208%.

Origin story

Freetrade is an English fintech company offering a freemium share dealing service. The company was founded by Adam Dodds, Viktor Nebehaj, and Davide Fioranelli in 2016.

Freetrade CEO Adam Dodds created the platform to become “an easy, affordable, reliable alternative to traditional share brokers, with the firm belief that investing should be a thoughtful, long-term exercise, not a get-rich quick scheme.” 

With a background in accounting and financial auditing, Dodds tried to set up an investment account in the United Kingdom and was surprised at how difficult and expensive it was. Considering brokers were charging £12 for each transaction, he realized there was a massive opportunity to eliminate these commissions and pass the savings on to consumers.

Freetrade was then launched in October 2018, with crowdfunding playing an important part in making the company operational. One participant in this process was Viktor Nebehaj, a former Google employee who was then employed to help Dodds grow the business.

Rather than using brokers, Freetrade connects directly with the London Stock Exchange (LSE) to reduce the cost of each transaction. The platform is popular with 26 to 35-year-old traders who prefer to invest in exchange-traded funds, with 50% of new customers new to share trading in general. In this way, Freetrade occupies a corner of the market wedged between social-media-based meme trading apps and traditional brokers with convoluted and expensive procedures.

Freetrade is now an award-winning app with over 1 million users. Following a March 2021 funding round, the company achieved a post-money valuation of $366 million with approximately $1.4 million in quarterly revenue.

Freetrade revenue generation

With no commission charged for brokerage services, the company operates under the freemium business model where customers can pay for extra features.

Freetrade revenue streams include premium subscriptions, currency conversion fees, and the interest the company receives from cash sitting in user accounts.

Premium subscriptions

Most company revenue comes from three monthly subscription choices:

  1. Freetrade Stocks and Shares ISA (£3/month) – a basic general investment account featuring free trades and fractional share trading. Here, users pay for access to an individual savings account (ISA) which allows them to avoid paying income tax or capital gains tax for the first £20,000 in investments.
  2. Freetrade SIPP (£9.99/month) – a self-invested personal pension plan with free transfers and no share dealing charges. SIPP investments can only be accessed once the customer reaches the age of 55.
  3. Freetrade Plus (£9.99/month) – a premium membership account with access to perks such as limit orders, stop losses, curated stock collections, and priority customer service. The company also offers 3% on cash up to a maximum deposit of £4,000. Freetrade Plus members get free access to the ISA account and can pay a reduced rate of £7/month for the Freetrade SIPP subscription.

Currency conversion fee

For every trade made in a currency other than British pounds, the company charges a currency conversion fee. 

The fee is 0.45% plus a spot exchange rate fee charged by the participating forex exchange.

Interest on cash

Like many similar platforms, Freetrade also makes money by lending out the funds residing in customer accounts to other institutions and collecting interest.

This interest is more formally known as net interest margin, which was reported at 1.3208% in the United Kingdom during 2020.

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