Skip to main content

Is Trading 212 Safe? How investors are protected (2024)

Franklin Silva| Updated: January 22, 2024

Investing online through brokers like Trading 212 is very popular for its ease of access and low costs. However, some investors reasonably worry whether their money and assets are safe with these platforms.

Trading 212 aims to provide robust protections for its customers’ investments and cash deposits. But is Trading 212 safe? In this article, we will answer this question, checking how your capital is protected and what kind of protection you can count on.

Summary

  • We believe that Trading 212 is a safe broker, as it is regulated by top-tier institutions such as the FCA, and its users are entitled to the respective investment protection funds if something goes wrong.
  • Nonetheless, Trading 212 is not a publicly-traded company, nor does it have a banking license. These two factors would ensure an even higher scrutiny and transparency of the company, meaning more safety for investors.

Where Is Trading 212 Regulated?

Company Regulator Supported Countries Investment Protection
Trading 212 UK Ltd Financial Conduct Authority (FCA) UK, Bahrain, Bolivia, Colombia, Ecuador, Guernsey, Gibraltar, Honduras, Isle of Man, Jersey, Kuwait, Moldova, Macedonia, Mexico, Qatar, Oman, Peru, Philippines, Serbia, Thailand, UAE, El Salvador, Angola, Ghana, Tanzania, Uganda, Zambia Up to £85,000 per person under the Financial Services Compensation Scheme (FSCS)
Trading 212 Markets Ltd Cyprus Securities and Exchange Commission (CySEC) Austria, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and Switzerland. Up to €20,000 per person under the Investor Compensation Fund (ICF)

Trading 212 operates through two distinct entities:

The first, Trading 212 UK Ltd, is registered in the United Kingdom with a London address and has been licensed by the FCA (license number 609146) since 2014. This entity is responsible for registering and managing clients from the UK and countries outside the European Union.

For the EU member states, clients fall under the jurisdiction of Trading 212 Markets Ltd, which is based in Cyprus and has been licensed by the CySEC (license number 398/21) since 2021. Due to Brexit, the FCA license is no longer sufficient to provide investment services throughout the entire EU, hence the need for an additional license.

Until recently, the company operated under Trading 212 Ltd, registered in Bulgaria (registration number 201659500). Although its details are still listed on the official platform’s website, it no longer serves clients.

The customer service department informed us that the Bulgarian branch has been closed. Trading 212 is now regulated only by the FCA and CySEC, Europe’s most popular financial market regulators.

Is Trading 212 Legit? Asset and Cash Deposit Protection

As a client of Trading 212, you will be entitled to various forms of capital protection. However, these will vary depending on the Trading 212 subsidiary with which you have signed an investment services agreement and the type of service itself.

Investment Asset and Cash Protection:

  • Trading 212 UK Limited has assets and cash covered by the Financial Services Compensation Scheme (FSCS), providing compensation of up to £85,000.
  • Trading 212 Markets Ltd has assets and cash deposits covered by the Investors Compensation Fund (ICF) in Cyprus, offering compensation of up to €20,000.
  • The company also has additional insurance of €1M per client underwritten by Lloyds of London. However, this applies only to clients registered under the Cypriot company.
Category Client Money and Assets Protection
What’s Covered Cash deposits, CFDs, stocks, bonds, mutual funds, ETFs, and other financial instruments held by Trading 212 on behalf of clients.
What’s Not Covered Fluctuations in market value, fraud or theft unrelated to Trading 212 issues.
Purpose Protect against Trading 212 bankruptcy or insolvency.

Trading 212 does not differentiate between asset protection and cash deposit protection, as it does not have a separate banking license.

Trading 212 Protection in Practice

We know that all of this may sound complicated. That’s why we’ve prepared everyday life examples that should explain in an accessible way how the protection works in the case of both regulators.

However, Before we move on to specific examples, you must remember that your funds are not immediately lost in case of a broker’s bankruptcy. Why? Companies like Trading 212 keep your assets (stocks, ETFs, etc.) in separate custodian banks. As a result, the broker’s finances are segregated from them, protecting your capital from potential creditors in case of bankruptcy.

In addition, uninvested cash from which you would like to earn interest is separately managed by an independent “qualifying money market fund” or QMMF, which must meet additional regulatory requirements.

Of course, the recovery of capital and assets can be extended over time and sometimes even last for years. However, once the liquidator organises the company’s situation, all your funds, minus administrative costs, should be recoverable.

If any obstacles hinder this recovery process, additional safeguards are in place: the asset protection schemes provided by CySEC and FCA. Let’s see some examples:

Let’s start with the assets and cash protection under CySEC

Consider Andreas, a resident of Greece, who uses Trading 212 Markets Ltd to invest €25,000 in ETFs. 

If Trading 212 Markets Ltd goes bankrupt and it is impossible to access the funds, Andreas’s investments are safeguarded by CySEC’s ICF, which covers up to €20,000 per investor. 

Therefore, Andreas would lose not more than €5,000 (€25,000 – €20,000).

How It Looks in the Case of FCA?

Imagine Sarah, a UK-based investor who has invested £50,000 in various stocks through Trading 212 UK Ltd. Suddenly, Trading 212 faces financial difficulties and declares insolvency, and creditors cannot determine to whom each asset belongs. 

Sarah is understandably worried about her investments. However, thanks to the FSCS, she is protected up to £85,000. 

In this case, Sarah would be fully compensated for her £50,000 investment despite the brokerage’s failure.

€1M Insurance to Protect Your Funds

As mentioned earlier, clients served by Trading 212 Markets Ltd (CySEC) can count on additional insurance guaranteed by Lloyd’s.

Trading 212 has purchased an “Excess of Loss” insurance policy to protect your assets if the company becomes insolvent. In such rare cases, Lloyd’s will pay up to €1 million per customer for net losses, subject to the policy terms, conditions, and limits.

However, the agreement contains information about customer retention. Each client will bear the first €20,000 of their losses. Lloyd’s will cover the portion of losses above this amount up to the €1 million policy limit.

Aspect Description
Purpose Provides additional insurance coverage to protect against major losses
Covered Losses Up to €1 million per customer
Policy Period The policy covers the period from February 1 2023, to 31 January 2024.
Customer Retention €20,000

Up to €20,000, your loss is covered by the compensation fund guaranteed by CySEC. Above this amount, you can claim reimbursement through private insurance.

Negative Balance Protection and Additional Measures

In addition to financial protection, Trading 212 will also offer you additional forms of security. Both the broker’s subsidiaries, supervised by the FCA and CySEC, guarantee, among other things, protection against negative balance.

Negative balance protection is a feature that protects you from losing more money than you have deposited (only applicable to investors who use leverage). If trades result in losses exceeding the account balance, Trading 212 will cover the additional losses.

The other protective measures include:

  • Restricting leverage on investment products depending on the volatility of the underlying asset,
  • Using standardised risk warnings to ensure retail clients are aware of the risks before trading,
  • Clarifying that initial margin protection requirements apply to opening and holding positions open overnight.

Trading 212 Own Notes

As stated on their website:

  • Trading 212 has been profitable every single year since its founding 20 years ago.
  • They have no debt and maintain solid cash reserves.
  • Their sustainability does not rely on VC funding or crowdfunding.
  • Trading 212 holds all client funds and assets in accordance with the regulations set out by the FCA and CySEC, respectively.

To Sum Up

Trading 212 operates through regulated entities in the UK and Cyprus to provide investment services and protections tailored to clients in different regions. Key protections include securing up to £85,000 per person in assets under the UK’s FSCS and up to €20,000 under Cyprus’ ICF in case of broker failure, so you definitely can feel safe.

Franklin Silva
Co-Founder & Fintech Analyst

Franklin is a CFA Level III Candidate with 3 years of experience in Wealth Management as a Fund Research Analyst and the Host of the "Edge Over Hedge" YouTube Channel.

linkedin
youtube