Is Trade Republic Safe? How investors are protected (2024)

Trade Republic is a commission-free neobank that offers a wide range of products, including stocks, ETFs, bonds, derivatives and crypto. It operates in 17 European countries and has over 4 million customers.

Yes, we consider Trade Republic a safe broker for the following reasons:

• Regulated by top-tier regulators: BaFin (Federal Financial Supervisory Authority) and Bundesbank (German Central Bank);
• Operates under MiFID II regulations, such as segregation, record keeping, and restrictions on the use of client assets;
• It has a banking licence from the European Central Bank (ECB);
• Investment asset protection up to €20,000 per investor;
• Cash deposit protection up to €100,000 per investor.

Do you want to know more details on how investors are protected when they use the trading platform? In this article, we will answer these questions and provide additional helpful information for potential and existing users.

Who regulates Trade Republic

Trade Republic, operating under Trade Republic Bank GmbH, is regulated by the Federal Bank of Germany (Bundesbank) and the Federal Financial Supervisory Authority (BaFin), the country’s top-tier regulators. This means that Trade Republic has to comply with strict rules and standards regarding its financial operations, risk management, customer protection and anti-money laundering.

Trade Republic recently obtained a full banking license from the European Central Bank (ECB), which allows it to offer interest on cash balances and hold customer funds in segregated accounts.

Additionally, Trade Republic operates under MiFID II regulations in each European country where they are active, thanks to laws issued by ESMA that allow for “passporting” of licenses. For example, in Ireland, the neobank is authorised by the Central Bank of Ireland, and in Spain, it is authorised by the Comisión Nacional del Mercado de Valores. Being regulated in multiple jurisdictions provides further oversight and accountability.

Trade Republic Pros & Cons

Is Trade Republic Legit? Investment Asset vs. Cash Deposit Protection

Using the services of Trade Republic and any other Europe-regulated financial company, you can count on the protection of your investments. However, as it turns out, regulations in Europe distinguish between two separate types of securities related to “investment assets” and “cash deposits.” What is the difference, though?

Investment Asset Protection:

• Covers securities like stocks, bonds, ETFs, derivatives, etc., held in one’s investing account.
• Protects against loss if the brokerage or platform fails financially.
• Protection amount varies but is typically €20,000-90,000 per investor across the EU.

Cash Deposit Protection:

• Covers cash deposits held at banks affiliated with the investing platform.
• Protects against loss if the bank fails financially.
• Protection typically up to €100,000 per depositor across the EU.

How It Works in Practice

Sounds complicated? Let’s then take a closer look at how both solutions work in practice, using practical examples.

Investment Asset Protection

Imagine you’re a Portuguese investor with €50,000 in stocks through Trade Republic. Your investment isn’t automatically lost in the unlikely event of the broker’s bankruptcy. Here’s why: firms like Trade Republic hold your assets (ETFs, shares) either with a custodian bank or in an entity called Special Purpose Vehicle, separate from the broker’s finances. This setup protects your investment from the broker’s creditors.

In case of bankruptcy, you’d experience delays as financial authorities sort out asset ownership, which could take months or years. Once sorted, you can transfer your assets to a different broker. Most of your investment should be recoverable, except for some administrative costs.

But what happens in rare cases where the segregation of assets is not properly executed or if other complications arise, leading to a situation where your investments are not fully recoverable? Asset Protection scheme offers a safety net in this context, providing protection up to €20,000. In our example, if everything goes wrong beyond standard procedures, your maximum loss would be €30,000 (€50,000 – €20,000 protected).

Remember, this protection is against broker failure, not market fluctuations.

Cash Deposit Protection

This time, let’s assume you are an Italian with €100,000 in savings and open a Trade Republic account to earn interest. In this case, your entire savings amount is protected under both German and European law. This means if Trade Republic were to fail, you would be entitled to reclaim the full €100,000.

It’s important to note that this protection is per bank. So, if you had another €100,000 in a different institution, that amount would also be fully protected.

Negative Balance Protection and Other Measures

Negative balance protection is a precautionary regulatory measure that prevents investors from losing more money than they have deposited, i.e., they will not owe any money to the broker. Trade Republic must apply negative balance protection to all accounts. If an account’s balance goes negative, Trade Republic will cover the exceeded loss and fix the balance to zero.

Trade Republic also offers other regulatory demanded measures, including:

• Best execution policy: Trade Republic ensures that it executes customer orders at the best possible price and speed, considering various factors such as market conditions, liquidity, costs and fees.
• Risk warnings and disclosures: Trade Republic provides clear and comprehensive information about the risks and costs involved in trading and the terms and conditions of its services.
• Customer verification and anti-money laundering: Trade Republic verifies the identity and residence of its customers and applies strict measures to prevent and detect any fraudulent or illegal activities on its platform.
• Data protection and privacy: Trade Republic respects the privacy and security of its customers’ personal and financial data and complies with the General Data Protection Regulation (GDPR) and other relevant laws.

Is there any additional protection apart from the mandatory ones? The answer is NO. However, Trade Republic claims it has a high operational and technical security level and a robust business continuity plan. Trade Republic also states that it cooperates with reputable and experienced partners, such as HSBC Germany Solarisbank AG, to provide high-quality and secure brokerage services.

Summing Up

All in all, we believe that Trade Republic is a safe broker, as it is regulated by top-tier institutions such as the BaFin and Bundesbank, and its users are entitled to the respective investment protection funds in case something goes wrong.

Nonetheless, Trade Republic is not a publicly traded company, nor does it have a long track record as some of its competitors. These two factors would ensure an even higher scrutiny and transparency of the company, meaning more safety for investors.

In the countries where the company operates, you will be able to benefit from the same protection as a German investor, which means you are entitled to up to €20,000 for investment assets and up to €100,000 for bank deposits.