Investing for beginners #4 – Choosing an investing platform – Which ones are best and which ones to avoid

which investing platform?

Historically, investing in stocks and shares was reserved for the wealthy and people who had a personal broker. The cost per trade was pretty high with broker commissions and fees to consider, so investing small amounts was out of the question.

As always, the following is not financial advice, read our disclaimer

Thankfully, investing in stocks is accessible to practically everyone these days, people starting out are no longer forced to use low yielding savings accounts to build cash. There are a plethora of investing platforms now available that allow investing for every type of investor, from paid to free, full control to totally hands off, there’s something for everyone. Today, we talk about the different types available and what we personally use to invest in stocks and shares.

How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.

– Robert G Allen

We’ve broken the types of platforms into 3 categories – free, paid and robo.

Free and Paid platforms are traditional trading platforms where you can build your own portfolio by selecting your own stocks and shares and investing as little or as much as you’d like. These platforms offer full control but require the most upkeep. The major difference here is the price you pay (more on that later).

Robo-investors on the other hand provide a more hands off approach. For the most part, they take care of the portfolio building part based on key information you provide like age, target, risk tolerance etc. You’ll usually set an amount you’d like to invest each month and some even provide a ’rounding up’ service on debit purchases to invest little by little.

What we say

Let’s cut right to the chase. We think that the ‘Free’ trading platforms that were about to talk about will be the right choice for most people. Contrary to logic, paying more doesn’t necessarily mean better and the latest free trading apps like Trading 212 are testament to this. The free trading apps offer a full investing experience, with the same stocks and tools you’d find on the more premium platforms, while still giving you far more control over your investing strategy than Robo-investors. Plus, if we didn’t already mention it, they’re free! Which is a bonus especially when you’re starting out.

Free Platforms

Being cheapskates, our favourite type of platforms are commission FREE, which is why we use them. These platforms are the latest US export, where apps like Robin Hood have been giving the more established wall street platforms a run for their money. These platforms promise full functioning DIY investing in stocks from around the world (note, some robo-investors are fee free, but we will cover these as a separate platform type).

There are 2 major players in this market in the UK – Freetrade and Trading 212. Note though that apps like Stake and more recently, Revolut and eToro, also offer some limited commission free trading which we will also touch on.

Are they really free?

In the case of T212, yes! And in the case of Freetrade – kind of yes. We call these apps free because the platform it’s self doesn’t charge any commission when making trades. Some of the larger traditional platforms charge £10 or more per trade! Note though, that even though freetrade is commission free, they do charge £3 per month to open a stocks and shares ISA account (which is the preferred account type) which isn’t charged with T212. Freetrade also now offer a ‘plus’ service, which is charged at £9.99 per month that gives investors access to more stocks and provides more tools like stop limits.

However, there is no such thing as a fee free trade. Period. “What?! You lied!” I hear you say. The reason for this is, all trading will incur some sort of charge due to: FX fees, stamp duty and the bid offer spread (along with taxes and withholding tax which we will cover in another article). These are fees that we just can’t get around and will be incurred regardless of the platform used. You’ll pay 0.5% on single stocks listed on the London stock exchange and in the case of Freetrade, you’ll pay foreign exchange fees of 0.45% on top of the spot exchange price (T212 doesn’t charge and passes the exchange rate to you at spot price). The bid offer spread is basically the gap between the highest price a buyer is willing to pay for shares and the lowest price a seller is willing to sell for. You’ll usually buy at the highest rate and sell at the lowest rate. For example, at time of writing, the bid price for Marks and Spencer plc is 133.05p and the offer price is 133.20 per share, so a difference of 0.15 pence.

OK, but are they as good as the paid platforms?

Theres no denying it, both T212 and Freetrade give you access to less stocks, funds and tools than most of the paid platforms. Freetrade have added many different stocks and funds to the platform over the past year and now offer over 3000 stocks and funds from the UK and US markets. T212 however currently boasts a stock range of 10,000+ stocks and funds from UK, US and European markets. For reference, Interactive Investor, which is a prominent paid platform in the UK currently advertises a catalogue of 40,000 stocks and funds, from 17 exchanges in 9 currencies.

With that said, we believe that considering that both Freetrade and T212 feature the majority of the most prominent stocks and ETF’s from around the globe, it gives the majority of investors more than enough choice to build a serious portfolio. Both platforms are very slick and contain much of the bells and whistles you would get from the big paid platforms including ISA’s and fractional trading (where you don’t need to buy a full share, you can merely by a part of a share, giving far greater flexibility when trading lower amounts). Couple these with commission free trading and these platforms make for real potent wealth building tools.

Cool! So which ones better?

For us the answer is simple: T212

To sum up, we feel that T212 offers more bang for your buck. They offer far more stocks, is as free as any free platform can be and has a few more useful tools (like pies) that we feel tip the scales firmly toward T212. Make no mistake though, Freetrade is a solid choice for your investments and is improving every month.

Alternatives to Freetrade and T212

As mentioned earlier, there are a number of apps entering the space, looking to get on the zero commission bus. Although we have no experience with them, popular CFD platform eToro now offer zero commission trading with access to 1750+ stocks and funds. In terms of functionality, it offers much the same features as T212, though the number of stocks is limited. Also, as eToro is traditionally a CFD broker, it can be easy to get led astray into ‘leveraged trading’. Be warned.

Online banking service provider Revolut are also building a catalogue of stocks that can be bought directly through the their banking app. While similar in functionality to the others, Revolut currently only offer around 850 stocks. This could be one to watch though as a banking app and trading platform in one is an interesting concept.

Lastly, investing app Stake have entered the space with a pretty interesting offering. Once again, the functionality of Stake is very similar to Freetrade and Trading 212, with access to over 3800 stocks. However, Stake deals in US stocks only (meaning it has the largest US offering of stocks). For us, we feel this is a little niche for building a well balanced portfolio. They also have a minimum deposit of £50 and charge a withdrawal fee of £2, meaning we’ve steered clear for now.

The best of the rest

Ok, so what if you decide commission free trading apps aren’t for you? Maybe you want a huge amount of stock positions, or a very hands off approach. If that’s the case, we’ve selected what we feel are the best alternative investing platforms outside of the ones mentioned above.

Our Robo-investing pick – Nutmeg

The original in the UK and still the best in our opinion, Nutmeg is a decent alternative for people who want a simplified way to invest. It is still the largest and best know robo-investing app in the UK and for good reason.

The great thing about nutmeg is, although offering a range of pre-made portfolios to invest in, they still give the option of buying a selection of stocks and funds.

Nutmeg will collect information from you when you sign up and from that, will create a recommendation on a portfolio type based on your risk tolerance and situation. They have 3 types of investing ‘styles’ too (socially responsible, fixed allocation, or fully managed) so there should be something for everyone. They also provide a fair amount of account types, including stocks and shares ISAs, junior ISAs, SIPPs and more. They also have an outstanding track record for customer service which gives great peace of mind when putting your hard earned cash into someone else’s hands.

Note however that nutmeg do charge platform fees, which range from 0.25% to 0.75% depending on your portfolio type, though there are a range of promotions they usually run that can minimise these in the first year. They also require a minimum investment of £500.

It’s also worth noting that it’s standard fully managed plan has returned 43.7% over the last 7 years before fees (it has a risk rating of 5/7). This is an average of 6.1% per year, which while respectable, isn’t going to set the world alight.

Our pick of paid platforms – Interactive Investor

As cheapskates, we’re not fans of paying fees. For us, you would only look to a paid platform if you had a sufficiently large portfolio (100k+) and if you’re trading at this level, the most efficient way of keeping costs down is with a flat fee provider.

Enter Interactive Investor. With access to 40,000+ stocks and funds on 17 exchanges, you’ll have an sea of options to fine tune your portfolio. They offer ISAs, SIPPs and standard accounts and regularly run promotions to minimise the costs.

The fees are pretty reasonable for a paid platform, with platform fees from £9.99 per month and a per trade price of £7.99 (International shares and non-standard accounts cost more), however, they do offer 1 free trade per month which if used, effectively brings your platform fee down from £119.88 to £24.00. Do note however, as these are flat fees, they can really eat into your cash when investing small amounts, so only consider if your portfolio size is large enough and the trade values are high enough to absorb these costs.

Next Up…

Thanks for reading! Click on ‘next post’ below for the next instalment of our investing for beginners guide.

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