Revolut’s Commission-Free Trading Joint Venture Explained
Commission-Free Trading on Stocks has only been available to Revolut clients for the last week. Currently, it’s only available to members using Challenger Bank and paying a monthly fee to Revolut. However, the expansion of this free trading service will be provided to all clients in the coming months. Revolut isn’t the first firm to provide zero commission trading on crypto equities. In the United States, a trading service named Robinhood has earned more than seven billion in profit since providing commission-free trading. There have also been retail brokerages like Investor & Trading 212 that have even begun offering similar services.
Revolut partnered with Investor to develop their commission-free stock trading service. Furthermore, other companies like DriveWealth also assisted in the development of fractional stock trading and securities from Revolut. It was a combined effort that’s also benefited hundred of clients across Europe.
The Joint effort
Even though these three companies are working together, the service will be entirely different from DriveWealth’s or Investors. The Head of Partnerships for Drive Wealth and the Revolut’s Head of Trading Products have both publicly come out to inform clients that Revolut’s service is truly unique to their platform. Furthermore, legally, neither one of these assisted brokers can copy the technologies created alongside Revolut. Andre Mohammed is the Head of Trading Product for Revolut. He has led this project to fruition and co-founded the idea of commission-free trading.
These level of partnerships are required to guarantee that the proper trading services are provided to clients. This includes the development of high-frequency trading, which was introduced by US Firm Robinhood. They’ve been making millions from offering HFTs to companies and clients across the United States. Since it’s creation, the practice has become routine.
Mohammed spoke publicly regarding HFTs by stating: “We will not be paid for any order flow we send to DriveWealth. Our trading service operates under a ‘freemium’ model, so our money comes from subscription fees plus commissions from trades placed outside of the monthly quota.”
The Challenger Bank
The strange reason as to why Revolut and multiple other exchanges are moving to a zero-commission fee on stock trading is that it dramatically lowers their custodial costs. Revolut will have an advantage over competitors, with only one basis point annual. This will make their custodial fees almost non-existent, which in turn allows for substantial revenues to be earned.
Revolut is providing clients with one hundred trades monthly that will be commission-free. Afterwards, it’ll cost £1 to complete a trade with the exchange. This is considerably lower than anticipated and could become a problem for Challenger Bank, the financial supporter of Revolut. However, since Challenger Bank can now accept forward market orders during business hours. It’s expected that their revenue with Revolut will be maintained through processing fees.
Clients of Revolut will now have the capability to purchase fractional shares and whole shares. Subsequently, this is allowing for Challenger Bank and Revolut to accept new high leverage clients to their platform continually. It’s speculated that the stock trading solutions offered by Revolut will continue to be enhanced by first-party and third-party developers. The main challenge facing the exchange right now is turning a profit on this new service.