The so-called millennial generation has boosted the success of an online broker, poetically baptized as , whose founders (dressed in the classic black sweatshirt of the geniuses of American technology) called it that because their objective “is not to make richer those who already are” but rather to “democratize investment”, but without the need to steal from those who have the most to give it to the poor. They settle for a zero commission policy.
Not exempt from some scandals, such as the collapse that the application has suffered twice this year as a result of the market crash in March, and after the suicide of a young university student from Chicago after an error in the application that showed him a $750,000 in debt when it wasn’t real, Robinhood’s critics have fervently accused it of leaving a very dangerous tool in the hands of uninformed investors. But, it reaches a value of more than 11,000 million dollars, after the current crisis unleashed the interest of millions of small investors in entering the market due to historically low valuations. After the frustrated attempt to reach Australia, Robinhood continues to try to expand, and although they do not yet have a date to land in the United Kingdom, their zero commission model has already been copied by other brokers, also in Spain.
Zero commissions
This is the case of the British XTB and the Israeli eToro, which have eliminated commissions for buying/selling shares in cash and also those for custody for small investors. Where is the trick to make your business viable? Basically, in that their income depends on the trading of CFDs -or contracts for difference-, a product classified as high risk by the European authorities, which results in losses for 90% of those who invest in them (in addition to the leverage of these products , which implies that an amount greater than the amount invested can be lost) and against which Brussels has been waging a real crusade for a couple of years. “Stocks are the bridge to digital investing,” acknowledges Tali Salomon, a spokesperson for eToro, the first broker to scrap commissions two years ago.
But there is also fine print. These zero fee brokers give access to a limited number of shares, usually the most traded ones. In the case of eToro there are 5,000 securities, 58 of them in Spain that cover Ibex and some firms from the rest of the Continuous Market. XTB offers 2,000 companies in cash shares in 16 world markets, including our country, and 200 ETFs (or exchange-traded funds). In addition, they do charge a commission for the euro/dollar conversion. In the case of eToro, it is done at the moment an investor opens an account with them, since the operation is carried out in dollars. In this case the commission is 50 pips, as it is known in financial jargon. A pip is the last decimal of a currency cross, the 0.0001. XTB, for its part, applies a 0.5% commission for currency conversion, but only in the case of investing in markets outside the euro zone, such as the US Stock Exchange.
DeGiro has been knocked out of the top position as the cheapest broker. Still, his rates are very competitive compared to the rest of the national players, and he says he has no intention of following the Robinhood model any time soon. It was, in fact, the broker that was swamped by the flood of customer requests during the biggest market downturns in March and April, leading to months of waiting to open a stock account with them. DeGiro does not apply a custody commission, but it does charge 2 euros per purchase/sale, plus 0.05% of the cash, with a maximum of 10 euros to operate on the Spanish stock market.
Other brokers that do not have a custody commission are ClickTrade, ING (as long as at least one operation is carried out per semester, otherwise they charge 4,084 euros), and they do not have Singular Bank either. There are other houses that do not charge for custody of securities as operations become more active. Another business model is the one presented in May of this year by , a platform with national capital, which applies a monthly flat rate on the money in the account. It is cheaper for the retail investor and less for large operations.
On the other hand, the most expensive brokers to invest in continue to be banks -BBVA Trader, Bankinter and SOFIA, from Santander- together with houses such as GVC Gaesco and RentaMarkets.
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