It was only a few years back when friends and former roommates from their studies at Stanford University launched company Robinhood. Following graduation, they gained experience in the world of investing and they realized that big Wall Street firms pay only fraction of cents for each trade while retail investors have to pay more than 10 dollars. They wanted to grant everyone an easy access to financial market so any average citizen can build his own portfolio of stocks. Thus, they founded Robinhood, a company that leverages technology to encourage everyone to participate in the broader financial system.
Robinhood shook up Wall Street with its zero-fee transactions, forcing brokerage giants to reduce substantially their fees, and offer up other perks to remain competitive.
However, while American customers are able to trade through Robinhood for years, Europeans don’t have such great options currently. There are some startups claiming that they start their business soon (ninety nine) and there are some companies offering similar service to Robinhood but only in few European countries (Freetrade). Thus, for me personally, there were no commission free trading options until Revolut Trading became available.
For information about Revolut Bank refer HERE.
Who Is Commission Free Trading Suitable For
To be honest, commission free trading is not for everyone. You have to understand that commission free platforms also have to make money. In case of Robinhood there are also premium features. Let’s just say that you might just opt not to use them so this doesn’t apply to you. But Robinhood also passes regulatory fees to its customers and rounding them up to the nearest cent. Moreover, Robinhood receives compensations for directing orders to different parties for trade execution from those different parties. Comparing payments for order flow, Robinhood generates almost half of its income from payment for order flow which is exceptionally high portion compared to others brokers.
The free commission platform’s engine does not seek out price improvement opportunities for its customers. An order that is price improved either finds a price to buy at a slightly lower price than the customer’s limit order, or a higher price when selling. At traditional brokers, price improvement often saves the investor more money than they pay in commissions if trading volumes are sufficiently high.
Thus, Robinhood and other commission free trading platforms are suitable for you when you don’t care about the other ways they make money. And that is usually the case when you are trading small volumes and when you are buying shares in few hundred euros, any rounding differences are not material. If you’re trading just a few shares at a time, free trades make sense since there’s little to be made on price improvement. Your benefits from zero commission outweigh the costs you’re charged indirectly.
Fees And Features Of Revolut Trading
|Country of origin||UK|
|Regulation||Revolut Trading is appointed representative of Sapia Partners LLP (company with FCA permission to provide regulated products and services)|
|Instruments||Around 450 companies from NASDAQ and NYSE|
|Third Party Broker Used||DriveWealth LLC (US based)|
|Trading Platform||Mobile phone only through Revolut app|
|Deposit and Withdrawal fee||0|
|Commission fee||0 for first 3 / 8 / 100 trades in month for Standard, Premium and Metal account. Commission of 1 euro for each subsequent trade.|
|Custody fee||0.01% yearly fee, charged monthly|
|FX conversion fee||Interbank rate used as per Revolut account policy. Refer here.|
Revolut Trading provides currently the cheapest way of investing for people with few hundred euros to invest in the market at once. As it is a relatively new service, the opportunities are currently restricted a lot. You can trade only around 450 companies listed on American stock exchanges denominated in US dollars only. Currently no ETFs are available even though they are planned for the future.
Investors are often required to buy a minimum of one share in a company. That’s not a problem if the cost of a single share is low, but shares in many popular companies can cost more than 1,000 euros, or more. With fractional shares, Revolut customers can buy a fraction of a single share, which means they still own a piece of the company even if they cannot afford the whole piece.
Trading is accessible from the general Revolut bank app, however, it is really simplified. There is no analysis of the chart available, nor any additional information about the company except for ticker and current price. For further information investors have to look up other sites before investing through Revolut.
Potential investors also have to understand drawback in the maximum amount of trades available for free. Currently it is only 3 trades per month if you have standard account which is for free. The maximum amount of 1 trade is 1,000 US dollars. After that commission of 1 euro is charged for each subsequent trade (which is still relatively cheap though).
Revolut offers you to complete W-8 BEN form which is for individual who is not a U.S. person and receives dividends from a U.S. corporation to reduce withholding tax rate on dividends. This is reduced based on treaty signed between US and your home base country, but generally it is reduced to 15%. Thus, you pay 15% tax from all dividends and you can deduct this payment from your home country tax return.
If you’re investor-beginner, you’re investing smaller amounts few times per month or you just want to explore the universe of stock picking, Revolut Trading is a right choice for you for now. We will see how successful will Revolut be in expanding the number of instruments available mainly to ETFs and stocks from countries outside of the US and if more competition will come to the Europe with commission free offerings.
If you are an experienced investor with larger pile of cash to invest in the stock market, Revolut Trading is not a good option for you. It doesn’t offer enough diversification tools and benefits of traditional broker might outweigh its costs.