One of the biggest barriers to starting investing is the cost of the trading platforms. Most of the online trading platforms have an annual or quarterly fee amounting to around £100 p.a. Then on top of that they charge a fee of around £10 for each trade. Additionally there may be other fees if you wish to move off the platform or take money out.
The hard maths around platform charges mean that it is not cost effective to invest small amounts, as any gains on the investments are likely to be eaten up by the platform fees.
In the US in recent years they have had a service called Robinhood which offers free trading via your mobile phone. Now there is a similar service called Freetrade launching in the UK. It is early days for the service and you have to request an invite from their web site. Currently only an iPhone app is available.However they are also developing an Android app to follow.
So how can Freetrade offer share trading for free? Their business model funds itself by taking a small margin on each trade. Their trading costs appear to be minimised by making pooling free ‘basic’ trades from multiple investors to execute at the end of the trading day. They also offer instant trades at a cost of £1. It is also possible to invest in a limited range of US stocks on the platform.
There has been talk of Revolut or N26 addiing Robinhood style trading services to their smartphone baking offer, but there is nothing apparent on their websites that can be signed up to. So for now it looks like for now Freetrade is the only option for truly low cost small scale share investment in the UK.