Who Will Be The Robinhood of Europe?

Robinhood is an extremely popular brokerage app and the most popular platform for US retail investors. However, the company has put its European launch on hold, leaving a gap in the market for a low-cost trading platform to take hold of European retail investors.  

Like the USA, retail trading is becoming increasingly popular in Europe due to zero-commission trading. The start-ups vying for dominance in the European market are Trade Republic in Germany, Freetrade in the UK, and Bux in the Netherlands. These start-ups have recently seen their active user base rapidly increase to between 400,000 and 600,000 and are now expanding throughout Europe to gain market dominance. 

 

Brokerage apps are restructuring trading altogether, undercutting the high commissions European banks charge. Low-cost market access to thousands of shares, funds and cryptocurrencies is attracting millions of customers to these apps. However, regulatory scrutiny is growing in Europe after Robinhood faced US lawmakers for blocking users from buying skyrocketing GameStop shares at the beginning of this year.

 

Chairman of the European Securities and Markets Authority, Steven Maijoor has also recently expressed concerns. Stating that “specific aspects of online brokers’ business models” could incentivise “risky short-term trading strategies” by users. 

 

One of the major differences between online platforms and banks is whether trading platforms earn money by selling their order flow to a market maker – as Robinhood does in the US. Regulators in the UK and the Netherlands have stopped this practice, but in Germany brokers such as Trade Republic are still allowed to sell their order flow.

 

Rivals of apps such as Trade Republic have said the practice leads to inflated bid-ask spreads in prices quoted out of normal trading hours, especially for stocks such as Tesla or GameStop. Christian Hecker, co-founder of Trade Republic, argued that his users are guaranteed prices in line with this quoted on the Frankfurt exchange operated by Deutsche Borse.

 

The scramble for European dominance is set to see growing scrutiny from regulators, the dubious business models employed by apps such as Trade Republic may force competition out of the European market. Which firm takes the crown of the ‘European Robinhood’ is still unknown, what business model that firm will incorporate, is also unknown. What is known is that the trading landscape is set to change worldwide in the coming years due to these apps. 

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