What is a neo-broker? It’s a stockbroker designed primarily for use on smartphones, with the stated aim of simplifying investment.
Trade Republic, a neo-broker founded in 2015, positions itself as a savings platform and not as a speculation-oriented broker. “We defend long-term investment by individuals in the stock market. We do not advocate speculation,” said Matthias Baccino, country manager in Luxembourg.
In this spirit, Trade Republic offers investments in shares, ETFs and monthly investment plans. Stock market derivatives will also be available a few days after the launch, the company said in a statement on Tuesday 18 October. So will investments in crypto-assets.
Savers worried about their pensions
To attract customers, Trade Republic is capitalising on various concerns. First, those related to rising inflation. “Inflation in the eurozone has risen sharply. This should be a wake-up call for all Europeans,” said Christian Hecker, co-founder of Trade Republic.
Secondly, those related to building up a retirement nest egg in a context where statutory schemes are causing concern. “With inflation at almost 7% in Luxembourg and the pension system under pressure, there is really no alternative to individual investment,” said Baccino. “Anyone who just lets their money sit in their bank account will lose purchasing power year after year, and the state pension--even if you work until 70--will not be enough to maintain your standard of living.”
Trade Republic openly targets residents’ savings “a large proportion of which remain unused in bank accounts, resulting in a massive loss of value due to inflation”.
Anyone who just lets their money sit in their bank account will lose purchasing power year after year, and the state pension will not be enough to maintain your standard of living
The main argument is “no variable or hidden charges”. The company charges only €1 per order, regardless of the order. And the monthly investment plans for shares and ETFs are offered without brokerage fees, the company stated in a press release.
Baccino said that this low level of fees “does not threaten our business model, which is balanced and profitable”. For him, the basic trend in Europe is that of long-term investment. “People have common sense. They realise that they have to invest for the long term for their pensions. At their own pace.” It is a ‘safe and sensible’ approach that has attracted 340 million clients.
Financial innovation
But the ‘safe and sensible’ approach does not exclude financial innovation. Trade Republic offers trading in fractional shares. This is a very fashionable investment among neo-brokers that theoretically makes the stock market accessible. In many cases, the investor is not the direct owner of his fractional share, but of an ETF that replicates the evolution of the share.
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Trade Republic allows for a real ownership of fractional shares under the same price conditions as a classical investment. This is thanks to a legal innovation in Germany, where individuals can be co-owners of a securities account. Fractions of shares are thus held in a securities account for all other investors with a fraction of the said share. As soon as a saver has the whole of a security, it is transferred to his personal securities account.
An account can be opened “in just a few minutes”, by users who are of legal age and physically resident in Luxembourg with a smartphone (with iOS or Android operating system), a European telephone number and a Sepa-linked bank account.
In addition to Luxembourg, Trade Republic has extended its services to Estonia, Finland, Greece, Ireland, Latvia, Lithuania, Portugal, Slovakia and Slovenia. Trade Republic is supervised by the German regulators Bundesbank and BaFin.
Originally published in French by and translated for Delano