Robinhood Enters UK Market, Paving the Way for Competitive Share Trading Platforms

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Robinhood Enters UK Market, Paving the Way for Competitive Share Trading Platforms

Robinhood, the renowned US share trading platform and app, debuts in the UK today following a three-month period of soliciting feedback from potential UK customers, reports Andrew Michael.

The entrance of online platforms and share dealing apps into the market enables retail investors to directly engage in buying and selling investments, bypassing traditional financial advisors. With Robinhood’s arrival in the UK, how will this impact local investors amidst an already competitive landscape? The platform gained prominence during the ‘meme stock’ GameStop share trading frenzy in 2021, where individual investors squared off against major financial institutions. Criticism ensued when Robinhood halted trading in the stock during the saga. With an existing user base of 23 million, Robinhood will initially grant access to 6,000 US stocks including big names like Amazon, Apple, and Nvidia, accessible through both its app and web browser. Investors will enjoy the option to trade fractional shares and engage in 24-hour trading outside conventional stock exchange hours, spanning five days a week, on select stocks.

The surge in DIY investing over the past decade, partly catalyzed by lockdowns during the Covid-19 pandemic, has intensified market competition. Established UK providers such as Hargreaves Lansdown, AJ Bell, and interactive investor have faced increasing pressure from newcomers like social investing platform eToro, Webull UK, and Saxo, the entity behind Saxo Go. Robinhood, after abandoning previous attempts to penetrate the UK market in 2019 and 2022, aims to capture market share by offering accounts sans annual charges and trades free from both commission and foreign exchange (FX) fees.

While there are no explicit FX charges, the company’s standard pricing fee schedule for UK customers notes “implicit third-party costs of 0.03% included in the applicable GBP/USD exchange rate.” Consequently, a £100 deposit would incur a cost of 3p.

Moreover, Robinhood asserts it will pay its UK customers 5% interest on their cash holdings, surpassing rivals’ rates in the range of 2% to 3%. This relatively high interest rate draws attention to a significant issue, as highlighted by the Financial Conduct Authority’s Consumer Duty rules, emphasizing fair treatment of customers regarding interest payments.

Upon signing up for a Robinhood account, customers earn a reward equivalent to a fraction of one share, with most shares valued between £6 and £7, although some new joiners may receive shares worth up to £140. This incentive extends to Robinhood’s friends and family sign-up offer. In addition to being FCA-authorised, Robinhood assures UK customers of Securities Investor Protection Corporation coverage, safeguarding customers up to approximately £400,000 ($500,000) if the brokerage were to go bankrupt. Cash deposits earning 5% interest up to £1.8 million ($2.25 million) are insured with the Federal Deposit Insurance Corporation. These protections surpass the standard £85,000 limit offered by the UK’s Financial Services Compensation Scheme.

Robinhood also acknowledges British investors’ interest in local tax wrappers such as individual savings accounts, exchange-traded funds, and UK stocks, indicating consideration for these offerings in the future.

Jordan Sinclair, president of Robinhood UK, expressed, “Today’s general availability marks the start of a new chapter for Robinhood. We’ve been actively gathering feedback since our waiting list launch at the end of 2023. It’s clear that retail investors regard the traditional trading fees that they are expected to pay as a real pain point.”

Sinclair refrained from commenting on whether the company’s fee-free promise would remain indefinite.