Getting you the best price

Adam Dodds

October 3, 2019

Adam Dodds

We always try and get the best outcome for our customers.

When our customers buy and sell stocks, that means getting you the best price possible at that point in time.

All UK and other European stockbrokers are required by regulators to adhere to something called ‘best execution’ — which means taking all reasonable steps to obtain the best possible result for their clients. For retail customers, that best possible result means the best price, including any associated additional costs.

Best execution — a transatlantic difference

Best execution is defined and applied in a number of ways by different financial systems and regulators, in particular, Europe versus the US.

In our globalised tech and startup ecosystem, sometimes US and UK/EU financial practices are confused by customers. However, that does not reflect reality — our application of best execution is based on European regulation and specifically the UK’s implementation of it.

In the UK

In the UK, the regulator (the FCA) takes a principles-based approach: we have to live up to the spirit of the law as well as the letter.

It used to be common practice in European markets for stockbrokers to receive payment from market makers for sending their orders to them. This is known as ‘payment for order flow’. The FCA has categorically banned this practice because it undermines the objective of the stockbroker seeking the best possible outcome for their client.

That’s because a broker could send your order to a market maker that gives their customers a worse price, but for which the market maker will pay them.

But in our case, we’re optimising to get you the best price, not for us to get the best kickback.

In the US

The regulator takes a rules-based approach. As long as your broker gets you a price within the limits set by the regulator (aka National Best Bid Offer or NBBO), then it’s OK.

Payment for order flow is still permitted in the US. Yikes! 😬

Best price

We at Freetrade think the UK regulator has it right.

We simply prioritise getting customers the best price and shouldn’t have a perverse incentive against getting our customers the best possible outcome.

We go out to market makers on the London Stock Exchange and do the trade with the best price we get back. We won’t do a trade unless it is within the bounds of the observable prices (similar to NBBO in the US) but within that, we simply choose the best price.

We never receive any money from market makers for our customers’ orders, nor do we earn any money from charging a spread on the stock price to customers.

We pass the prices our execution venues give us directly to our customers.

We offer different kinds of trades, but that doesn’t change what the best price looks like.

Of course, you might want the greater certainty of an Instant Order since the market view of a stock can change throughout the day.

We’re continually focused on getting the best outcomes for our customers, building tech that increases our execution options and expands customers’ market access. This includes increasing the number of venues and exchanges we use to execute orders beyond the standard for most UK brokers: more venues, more competition for your orders, better prices for you.

We never receive any money from market makers for our customers’ orders, nor do we earn any money from charging a spread on the stock price to customers.

We pass the prices our trading venues give us directly to our customers.

Our pledge

We always consider our customers and their investment outcomes first.

We only charge fair, transparent fees for good services.

Our basic service will always be free.

Happy investing!

Adam

CEO & Founder

We’re on a mission to bring fee-free investing to Europe and beyond. 🔥

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