What is freetrade?
The Freetrade app was initially introduced in October 2018 for the IOS, later developed for the Android platform, to compete with Robinhood and Degiro, with the aim of offering free stock trading. It is mainly targeting US and UK stocks with the number of companies available increasing daily. It is a mobile only platform which can be a drawback for those who like to research on the computer and then make stock purchase decisions. One thing I love about Freetrade is they listen their customers and their roadmap takes onboard feedback from their customers. For example, you can see from the image below what they have recently shipped, things they are working on and what they have planned next. A few highlights from there are the introduction of Self Invested Pension accounts, better analysis and faster top-up.
A question that is often asked is whether my money is protected. Investments in the stock market can rise and fall and you will get no protection for this. Freetrade however is regulated by the Financial Conducts Authority which means the Financial Ombudsman Service can be used for a dispute or to make a claim against a firm if it fails. In addition to this, the FSCS protects up to £85,000, an increase from £50,000 if the firm goes bankrupt. You can see from this example below, another provider, such as Hargreaves Lansdown making use of a trust so that client money is segregated from their own funds to ensure they are complying to FCA rules and regulations. Freetrade has a similar approach to this and it is mentioned on their website.
https://www.hl.co.uk/security-centre/how-safe-is-your-investment
How to install the app
The installation is very straightforward and you can watch the video above for guidance. The app can be installed via IOS or the Android platform. You simply type Freetrade on either platform, install the app, add your email and go through the questions related to your tax position, national insurance number and residency etc to set-up your account.
How to add money
You can add money to your Freetrade account by linking it to your bank account using the Open Banking integration which is currently not available to IOS but it is on Android. It has to be a personal account, in your own name, and a full UK bank rather than prepaid cards. To transfer money at the moment, you will need to do a manual bank transfer, add Freetrade payment details, reference number and transfer the money. The money will usually be available in a couple of hours during normal work days, and hours between 08:30 AM – 08:30 PM. You need to make sure you use the reference provided otherwise it won’t work. This is being updated so in the future you can set-up regular account top-up.
My stock portfolio
If you look at my stock portfolio, in the video, nearly all of these stocks were purchased during the market drop at the end of March and early April 2020. The best time to purchase stocks is when profitable companies have had a drop in their share price. It is important to do your research and it is for this reason I try to keep no more than 20-25 percent of my portfolio in individual stocks. It carries a greater risk and I would never recommend beginners to invest in individual stocks. It is far better to invest in an index, set a foundation and then consider stocks.
For example, Apple is a company I purchased before their stock split, I have continued to hold Apple for the following reasons:
- Apple published its fiscal Q1 2021 results which covers October, November and December. They went past 100 billion dollars revenue in a quarter for the first time and iphone surpassed one billion users.
- Apple is always looking at different areas to generate revenue, for example from iphones, services, mac, wearables and the ipad.
- Any company that you invest will have a stock price which over time will reflect the earnings of the company and the profit they are making. This is something to consider with any individual stock investment.
- We know Iphones are maturing so Apple has to consider other revenue sources and areas that have started to generated healthy revenue are:
- Services: App store, AppleCare, iCloud, Apple Pay, Apple Music, Apple Tv+ and Apple Arcade
- Wearables: such as watches, headphones, home and accessories are also making profit.
- Finally, Apple have a really healthy share buy back programme which is driving the stock price and giving back to investors in a tax efficient way.
Areas I have to consider from a negative point:
- Can Apple continue innovating?
- Will their iCar venture be a success or a failure similar to projects Google have tried?
- How will antitrust laws impact apple as they have faced scrutiny in Europe and US?
- It is currently overvalued and morning star values it at around $98 dollars a share (as of 14th March 2021) .
- People are also keeping their phones for longer and it has a lot of competition from Samsung as well as the likes of Amazon that reduce their hardware to encourage people to sign-up to their Amazon prime, products such as echo smart, firestick or kindle fire.
How to buy and sell stocks
To buy a stock you can click on search and type the ticker symbol, which is an abbreviation of the stock. If you don’t know the ticker symbol, simply type the company name. You will see a chart of the company, the current price and if the market is open. The UK stock market is open Monday to Friday, unless there is a holiday, between 08:00 – 16:30. The US market is open between 09:30 – 16:00 (UK time 14:30 – 21:00).
If you decide to purchase a stock outside the normal open hours then your order will be placed at a specific time. For US stocks it will be processed at 3 PM, this is so there is less volatility. For UK stocks, any orders outside normal trading hours will be processed at 10 am. You should never buy a stock just as the market opens as the price can fluctuate. If you purchase stocks during normal market hours, you enter the amount you want to invest and you can see how many stocks you will get. Freetrade will use best execution to get you the best price available. The minimum amount is £2 and with US stocks you get fractional shares, currently not available with UK shared. If you are buying US stocks then there is a foreign exchange fee that needs to be paid. It is the spot rate + 0.45%. This is because you are buying stocks in USD and your British pounds needs to be converted. You pay this percentage every time you buy or sell US stocks. It is for this reason that a stock can be down as soon as you purchase it because these fees are taken into account.
How to sell stocks
If you want to sell stocks, you need to go to your Portfolio by pressing the Home button. You will then need to select the share you want to sell. You click on the sell button and you can sell all shares or select an amount of your choice. When the market is open, it will process it. It is far better to sell the shares when the market is open as you will know the exact price or use a limit order.
Different types of Free trade accounts
If you have a very small portfolio or you are just starting out then the General Investing Account is perfect. You might have a few less features but majority of stocks that you want to purchase are available. The next account after this is using an ISA account. This is where your money is sheltered from tax. I will do a video on this in the future. You have to pay £3 per month to hold stocks within an ISA. For a small portfolio it makes no sense. If you are investing a lot of money then perhaps consider this.
The final account is the Freetrade plus. For this account you pay £9.99 per month and it gives you extra features such as:
- A limit buy order: this is where you specify a price for the stock and when it reaches that price, it will purchase the amount of shares you requested. A limit using a sell will do something similar, when the limit price is reaches what you set or better, it will sell the stock.
- A stop loss is different because you use a stop loss if the share falls to or below the level you set.
- You do get more stocks in the plus option, new initial public offering and you get interest on money you keep which is set to 3% percent for a maximum of £4,000 cash. It is an interesting incentive as most investors won’t keep cash in an investment account for long periods of time anyway.
- There is also mention of priority customer service when you do need support for the plus account.
For anyone who is interested more in terms of the pricing and how this platform compares with others. You can use the calculator which I will link in the video so that you can compare it with other brokerage firms.
https://freetrade.io/pricing#calculator
Withdrawing money and wait time
Every time you sell a stock, the amount has to settle before you can withdraw it. If you decide to sell a stock and invest the cash into another company, this is fine and you don’t need to wait for settlement. Settlement for UK stocks can take 2 working days i.e. T+2 and US stocks can take up to 3 working days once you have instructed, T+3. This is the industry standard so other platforms will be the same approach. Finally, there is no fee for withdrawal or depositing. The money can only go back to the original account you set-up, this is mainly a security feature to stop your account from getting compromised and someone withdrawing the sums to their account.
Warning about mobile investing apps
Finally, I want to highlighting how important it is to set-up a solid investment account which consists of a world index tracker, knowing the risks involved before diving into individual stocks. When you are young, you want to grow your money quickly and this can bring many risks. I have seen far too many people lose money trying to invest in GameStop or other companies without even looking at their balance sheet. I do feel that a mobile platform does bring more emotions to investing which means you check your phone often. I have a habit where I only check my investments once a month and I am aiming for once every few months. Short term the market is very volatile and we can make a rash decision.
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