Exclusive: Trading 212 revenues down 47% in 2019
FNG Exclusive… FNG has learned via regulatory filings that UK/Bulgarian Retail FX and CFDs broker Trading 212 saw a significant decrease in revenues and profitability in 2019, due to what the company termed “unfavorable market conditions”. While the company filings did not elaborate much beyond that, we believe that the drop in income was mainly a result of the leverage restrictions on CFD trading imposed by the FCA in the UK and by ESMA in the EU in late 2018.
Trading 212 group revenue came in at £29.7 million in 2019, down 47% from £56.3 million in 2018. However the company’s footprint continued to grow in 2019, with year-end client funds held of £25.7 million, versus £20.2 million at year-end 2018. The group also experienced a substantial increase in terms of customer acquisitions with 84,186 new CFD accounts opened in 2019 compared to 46,154 in 2018. The increase was mainly due to focused marketing campaigns to attract new customers and increased recognition of the brand Trading 212.
Profits at Trading 212 for 2019 totaled £7.2 million, down 78% from 2018’s £28.9 million.
Trading 212 Group Limited, controlled by Bulgarian entrepreneurs Borislav Nedialkov and Ivan Ashminov, had three subsidiaries in 2019: Trading 212 Limited incorporated and licensed in Bulgaria, Trading 212 UK Limited in the UK (and licensed by the FCA), and offshore Trading 212 Global Ltd in Vanuatu. The Vanuatu company was incorporated in 2019 but was terminated in October 2020 and was never operational.
While the figures reported were for 2019, we believe that Trading 212 – like many online CFD brokers – saw a large increase in activity and client signups during most of 2020 and into early 2021, thanks to long extended periods of market volatility. The company, which now divides its branding between Trading 212 CFDs and a commission-free stocks and ETF offering Trading 212 Invest, tweeted out in August 2020 that it had reached $1 billion in client assets after posting in July that more than 500,000 people have opened and funded Invest and ISA accounts. Last week, in the midst of the GameStop trading craze, Trading 212 stated that due to unprecedented demand it has temporarily stopped onboarding new clients and that once it processes the existing queue it will re-open for new registrations.
Trading 212 operates a Contracts for Difference (CFDs) service, taking on clients around the world with the exception of the United States and prohibited jurisdictions. The underlying assets traded by clients include equities, equity indices, currencies, cryptocurrencies and commodities with FX, oil and indices being the most popular.
As of December 2019, Trading 212’s clients were entirely retail with no corporate or omnibus accounts accepted (except for the purposes of intra-group position hedging). All clients come to Trading 212 directly; no rebates are paid to third parties for client acquisition. Market risk for the group is aggregated in the Bulgarian subsidiary.
Revenue derives from commissions and spread paid by customers and from client losses on unhedged positions. The group operates a policy of guaranteeing that clients cannot lose more than the amount they deposit. While this policy gives comfort to traders in volatile markets the group will be forced to write off client negative balances, potentially generating a trading loss. It is anticipated though that such losses will be short term as volatility is the single biggest driver of client acquisition; a day’s trading loss would be expected to be more than offset by higher trading volumes over the following weeks.
The company said that marketing within the Trading 212 group is generally restricted to online channels, which though costly, target an audience more likely to require Trading 212’s mobile-led trading platform than that responding to traditional advertising. Profitability depends on offering clients an attractive venue, and on attracting prospective clients. The unique selling point of the business is its platform and in its service. The business aims to be more generous when dealing with clients than its competitors, recognizing the fact that goodwill can be a cost-effective sales tool.
Trading 212 UK Limited has a signed Client Agreement with its sister group company Trading 212 Ltd in Bulgaria, by virtue of which Trading 212 receives and executes orders for transactions with CFDs via Trading 212 Ltd’s electronic trading platform.
Trading 212’s income statement and balance sheet for 2019 follow: