Why Trading 212 is Bad: The Risks and Downsides
Trading 212 is one of the most popular trading platforms in Europe, free of commission and easy to use. As one of the leading brokers, it has positioned itself as a key disruptor in the stock brokerage industry by attracting a broad user base. But behind the nice features, the platform has several risks and downsides that both new and experienced investors should be aware of. Here we take a look why Trading 212 is bad for some investors and the risks involved.
Table of Contents
Why Trading 212 Is Bad
1. High Risk of Losing Money in CFD Trading
CFDs (Contracts for Difference) are high risk, and trading CFDs can lead to significant financial losses, with most retail investor accounts losing money.
Trading 212 says most investors lose their capital, especially with leveraged products.
Forex and CFDs on the platform are volatile, and new investors will lose a lot of money.
2. No Financial Services Compensation Scheme (FSCS) Coverage for CFDs
While Trading 212 is regulated and has FSCS protection for cash deposits and shares ISAs, this protection does not cover CFD accounts. CFDs do not involve owning the underlying asset, which adds to the risk. If the company goes bust, funds in CFD accounts may not be fully protected.
3. Hidden Fees and FX Costs
- Forex Trading Fees: Commission-free is not free of fees, forex trading has FX conversion fees that will eat into your profits, negating any significant savings you might have expected.
- Other Fees: Inactivity fees or depositing funds in non-supported currencies will eat into your trading budget.
4. Regulatory Issues
While Trading 212 is regulated by the Financial Conduct Authority (FCA) in the UK, ensuring adherence to strict financial regulations, some users have raised concerns about the platform’s compliance with certain regulatory requirements. Specifically, the Financial Services Compensation Scheme (FSCS) is designed to protect consumers when authorized financial services firms fail. However, questions have been raised about Trading 212’s compliance with FSCS regulations, particularly regarding the protection of funds in CFD accounts. This lack of clarity and potential regulatory issues may raise concerns for investors who prioritize robust regulatory protection.
Trading 212 for New Investors
Trading 212 calls itself a platform for new investors. However, invest accounts can be complex and may have potential drawbacks for beginners. While it has nice tools like practice account and pie feature, there are big downsides:
- Over-simplified Interface: The platform is so easy to use that beginners will underestimate the risks of trading in financial markets.
- No Comprehensive Educational Resources: Compared to other brokers, Trading 212’s educational material is limited, new investors are exposed.
- High-Risk Products: Offering leveraged CFDs is not suitable for many new investors.
1. Limited Investment Options
Although Trading 212 offers a variety of investment options, including stocks, ETFs, and CFDs, some users find the platform’s offerings limited compared to other brokers. Notably, Trading 212 does not provide forex trading or practice accounts, which can be a significant drawback for some investors. Beginner investors, in particular, may find the lack of forex trading options and practice accounts a disadvantage, as these features can be crucial for gaining experience and understanding the financial markets. Other brokers often provide a broader range of investment options and tools, making them more suitable for diverse investment needs.
2. Limited Education and Resources
When it comes to educational resources, Trading 212 falls short compared to other brokers. While the platform does offer some educational materials and webinars, many users report that these resources are insufficient for making well-informed investment decisions. Additionally, the platform’s customer support is limited, which can be frustrating for users who need assistance. This lack of comprehensive education and support can be particularly challenging for beginner investors who require more guidance to navigate the complexities of trading and investing. Other brokers typically offer more extensive educational resources and better customer support, making them a better choice for those new to investing.
Trading Platform Downsides
1. Uninvested Cash Risk
Cash sitting in a Trading 212 account will not earn interest, reducing their growth compared to other platforms that offer high interest on uninvested cash.
2. Platform Limitations
- Stop Loss: Available but not as robust as competitors.
- Technical Issues: Users report platform outages or slow execution during high market volatility.
3. Withdrawal and Deposit Issues
Withdrawing Money: Delays in withdrawal can be frustrating especially during market downturns. Users also face challenges when they try to deposit money, as the process can sometimes be cumbersome and not as intuitive as expected.
Minimum Deposit: No minimum for some accounts but some features require higher minimum deposit.
4. Difficulty in Opening an Invest Account
Opening an Invest account with Trading 212 can be a cumbersome and time-consuming process for some users. Reports indicate that the account opening procedure is complex, which may deter potential investors. Furthermore, the platform’s minimum deposit requirements can be higher than those of other brokers, making it difficult for some users to start investing. This complexity and higher financial barrier can be particularly discouraging for beginner investors or those with limited funds. In contrast, other brokers often offer more straightforward account opening processes and lower minimum deposit requirements, making them more accessible to a broader range of investors.
Comparing Trading 212 with Other Brokers
| Feature | Trading 212 | eToro | Interactive Brokers |
|---|---|---|---|
| Commission-Free Trading | Yes | Yes | No |
| CFD Risks | High | High | Moderate |
| Educational Resources | Limited | Extensive | Extensive |
| Regulation | FCA (UK) | FCA (UK) | FCA (UK) + Global Regulators |
| FSCS Coverage | Partial | Partial | Full for UK Clients |
Questions
What are the downsides of Trading 212?
- Most retail accounts lose money.
- Limited FSCS protection for CFD accounts.
- Hidden fees like FX conversion costs.
Is Trading 212 banned in the UK?
No, Trading 212 is not banned in the UK. It is regulated by the Financial Conduct Authority (FCA).
Can we trust Trading 212?
Trading 212 is a legit broker but potential users should be aware of its limitations especially around CFD risks and platform reliability.
Do people make money on Trading 212?
Yes but many retail investors lose money especially when trading leveraged products like CFDs.
Summary
Trading 212 has nice features like commission-free trading and easy to use platform but not without its downsides. CFD risks, hidden fees and limited FSCS protection is not suitable for new investors or those looking for robust security.
Before using Trading 212, try eToro or Interactive Brokers which may have better resources, stronger protection and lower overall risks. Always research and assess your financial goals before trading.
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