Exclusive: Freetrade secures fractional share trading FCA greenlight

By Oliver Smith on 4th July 2019

Fintech

Adam Dodds’ company is on track to become the first in the world to offer US, UK and EU fractional share trading.

Exclusive: Freetrade secures fractional share trading FCA greenlight
Image source: Adam Dodds/Freetrade.

In what is possibly a world-first, Freetrade is poised to launch fractional US, UK and European share trading later this summer having received the regulatory go-ahead this week.

“The legacy stockbroker infrastructure in Europe doesn’t allow for it,” said Adam Dodds, Freetrade’s CEO and founder speaking exclusively to AltFi, “so we’ve had to build it from scratch.”

Fractional share trading was first mooted by Freetrade as far back as 2016, but has taken a while given the infrastructure in Europe isn’t established to offer fractional share trading, unlike the US where it is commonplace.

The feature allows investors to buy a portion of a share, something useful for investing in a company like Apple which trades at over $200 per share.

“We think fractional is actually an optimal experience,” said Dodds, “because most of our users think about how much they want to invest in a company, not how many shares they want to purchase.”

As well as building the technology, Freetrade also had to seek permission from the FCA to become a full stack broker with the same kind of permissions as a JP Morgan or Goldman Sachs would have.

The reason is that in order to offer fractional shares Freetrade will have to hold an inventory of stocks on its balance sheet and manage the division and distribution among fractional investors.

“That’s a riskier thing as you’re holding a lot of shares and if there’s a crash, the value of those shares will go down and there are balance sheet implications.”

Because of that Freetrade must also increase the amount of capital it holds on its balance sheet above the £150,000 it was previously required to hold.

The launch of fractional shares themselves will coincide with the arrival of a “brand spanking new Freetrade platform” that the team have been working on for over a year.

As well as fractional trading across all its existing US, UK and European stocks the new platform has a vastly expanded “universe” of investments available.


 

Comments

Konstantin

10 Jul 2019 09:09am

So what's the difference to the currently available savings plans offered at any broker in Germany, where you also select a certain amount and it's invested in a stock, ETF or a certificate? Why world-first? Almost any broker in Germany is doing that already. Best, Konstantin