When you invest in the stock market, your capital is at risk. You may receive back less than your original investment. This is true whether you invest in stocks, exchange-traded funds (ETFs), exchange-traded commodities (ETCs), investment trusts, Treasury Bills or any other securities available on our App.
Whenever you invest your money, there is an element of risk to it. Even if you put your cash in a bank account, it is not truly risk-free - if the interest rate is less than inflation, the value of your cash is actually falling.
When you put your cash in a bank account, however, you expect to receive at least the same amount back as you put in (your ‘capital’), provided your bank doesn’t go bankrupt. This is not necessarily true of investments through our App, for which your capital is at risk.
This Risk Disclosure summarises risks of investing in equities and Treasury Bills through our App. It does not disclose all of the risks or other details relating to the investments which we offer.
Equities
Market risk
The market price of an investment can go down as well as up. Past performance is also not a reliable indicator of future performance. The market price of an instrument is influenced by many factors. These include company performance, economic conditions, market sentiment and news flow.
Prices of shares will sometimes move very quickly and unexpectedly. This includes during times when markets are open for trading, but also there can be large jumps or falls in price between the time at which the market closes on a trading day, and the time it opens on the following trading day.
The movements in prices over time also means that the indicative price you see in-App (based on the latest price point received from our third party data provider) when you place your order will typically vary from the price you receive when that order is executed.
Liquidity risk
Liquidity risk is the risk that an asset may be difficult to sell at a reasonable price or the risk that it may be difficult to sell the asset quickly, meaning that you are not able to withdraw your money or use it on other investments.
All securities available on our App carry liquidity risk. However, some securities carry higher liquidity risk than others. Typically, more highly traded securities (such as those listed on the main market of the London Stock Exchange) will be more liquid than less traded securities (such as those listed on the London Stock Exchange’s AIM market). Certain ETFs and investment trusts can also suffer lower liquidity at times.
For all securities, there will be a difference between the price you can buy at (the ‘offer’ price) and the price you can sell at (the ‘bid’ price) - the offer price will almost always be higher than the bid price. The difference between these two prices is known as the bid-offer spread. More liquid stocks will have a lower bid-offer spread than less liquid ones. So as with market risk, this also means that the indicative price you see in-App when you place your order will typically vary from the price you receive when that order is executed.
Liquidity risk may also mean that orders are rejected (because there are no available market participants willing to execute a trade at an acceptable price) which can result in you not being able to buy or sell your securities. Typically these interruptions are short-lived, but for more illiquid securities it can sometimes result in difficulties trading those securities over extended periods.
Currency risk
Where your investments are denominated in currencies other than GBP, fluctuations in foreign exchange rates will impact the market value of your investment, as well as any dividends distributed by the company to shareholders.
In addition, a small proportion of the cash that we hold in our client money account may be in currencies other than GBP. This is so that we can process foreign exchange transactions. We manage this to ensure that we always hold the correct GBP value in the account but, if we were to become insolvent, you might be exposed to fluctuations in foreign exchange rates.
Settlement risk
Settlement is the exchange of the instruments you have bought or sold for cash at the agreed price. When you place a trade with us, we rely on market infrastructure and counterparties to settle the trade. As we do not have control over market infrastructure or counterparties, there is a risk that the settlement process may be delayed or fail altogether. These delays or failures could impact your ability to withdraw cash until settlement takes place or until cancellation is confirmed.
Insolvency risk
When you buy a share in a company, you own a part of that company. This means that you are ordinarily entitled to receive any profits it distributes as dividends. It also means that, if the share price has risen since you bought it, you are able to benefit from that increase in value by selling your share.
However, if the company becomes insolvent, it is likely that the value of its shares will fall sharply. A share will usually be delisted from the stock exchange when insolvency becomes likely or when insolvency processes are formally triggered. At this point, it will not be possible to buy or sell any shares you hold in this company on most occasions. Where an insolvency occurs, shareholders will usually rank lowest in the priority for receiving any funds back, meaning that there is a higher risk that you will receive either nothing at all or a fraction of what you invested. If shareholders do receive any funds back following an insolvency, it will typically take a long time for this to be confirmed and for any funds to be received.
Legal and regulatory risks
Legal actions or changes, including those taken by governments or regulators, can cause risks to the value and ability to sell your investments. This includes regulatory actions to de-list or ban trading of a security, which can lead to you not being able to sell your securities. While such actions are relatively rare, they can be very impactful and unexpected.
If regulatory requirements change, we might have to stop offering certain services or securities on our app. This could impact your ability to purchase additional shares or sell your existing holdings of a given security.
Service interruption and platform risks
While we try to minimise disruptions to our services, there can be instances where access to our services can be interrupted, whether this is caused by a market issue, an external provider or our own systems. As outlined in our terms and conditions, we do not guarantee that our services will always be accessible by you, always available, always functioning properly or error-free.
In these situations, you may not be able to submit orders or your orders may be cancelled. You may also not be able to monitor your positions using our App.
Collective investments - Exchange Traded Funds (ETFs), Exchange Traded Commodities (ETCs) and Investment Trusts
Collective investments carry all of the risks described above. However, each ETF, ETC or investment trust carries its own particular risk. It is important to review the Key Information Document (accessible from the Discover screen for relevant securities) for a specific security before investing. This document provides more information on the features and risks of that security.
Depositary Receipts
Depositary receipts carry all of the risks described above. However, each depositary receipt may carry additional specific risks or costs, depending on the underlying company held via the depositary receipt and the nature of the receipt or the issuer. It is important to do your own research on the key characteristics of each depositary receipt before investing.
Treasury Bills
Investing in 28-day UK Treasury Bills carries its own set of risks. While Treasury Bills are considered lower-risk than certain other investments, it is important to be aware of some of the risks associated with investing in UK Treasury Bills.
Reinvestment risk
Yields at the weekly Treasury Bill auction typically reflect the short-term interest rate, set by the Bank of England. If the Bank of England adjusts its policy rate, this may influence the yields on newly issued Treasury Bills. If rates fall, customers will not be able to reinvest their funds at the same yield at which they had made their original investment.
Liquidity risk
UK Treasury Bills purchased via the Freetrade app cannot be sold, and must be held until the end of their 28-day maturity period. In certain circumstances Freetrade may, at its discretion, provide customers with a mechanism to exit their positions prior to maturity.
Credit risk
UK Treasury Bills are issued by the UK Government’s Debt Management Office, and as such are backed unconditionally by the UK Government. However, there is still a risk of a default by the UK Government, which could lead to the Government failing to pay the principal or accrued interest of the Treasury Bills.
Execution risk
Due to the nature of the auction process, Freetrade’s bids may be unsuccessful or lead to partial fills of our customers’ orders. In these situations, your order may be unsuccessfully or may not be fully filled, depending on the circumstances. Any uninvested cash will be returned to your Treasury account. Please see our Order Execution Policy for more details.
General Investment Account
