Is Trade Republic safe? Everything you need to know

Trade Republic is a low-cost bank and brokerage that offers a wide range of products, including stocks, ETFs, bonds, derivatives, and cryptocurrencies. It operates in 17 European countries and has over 4 million clients.

But is investing through Trade Republic safe? How are my assets protected? Are they in my name? In this article, we will answer all these questions by analyzing how your capital is protected and what kind of safeguards you can expect.

Highlights:

• Regulated by reputable authorities: BaFin (Federal Financial Supervisory Authority) and the German Federal Bank (Bundesbank);
• Operates under MiFID II regulations, such as asset segregation, record-keeping, and restrictions on the use of client assets;
• Banking license from the European Central Bank (ECB);
• Investment asset protection of up to €20,000 per investor;
• Deposit protection of up to €100,000 per investor;
• Trade Republic is a private company (not publicly listed) and has a short track record.

Who regulates Trade Republic?

Trade Republic, whose legal name is Trade Republic Bank GmbH, is regulated by BaFin (Federal Financial Supervisory Authority), the financial markets regulator in Germany, and the German Federal Bank (Bundesbank). These are considered "top-tier" regulators.

This means the company must comply with strict rules on financial operations, risk management, customer protection, and anti-money laundering measures. Additionally, Trade Republic holds a banking license from the European Central Bank (ECB), allowing it to offer banking services such as deposits and loans.

Additionally, Trade Republic holds a banking license from the European Central Bank (ECB), allowing it to offer banking services such as deposits and loans.

Protection of financial assets vs. deposit protection

When using Trade Republic, you will have two main types of assets in your account: deposits and financial assets (excluding cryptocurrencies). These are treated differently:

Deposits

• Your uninvested cash is deposited in banks such as Citibank, J.P. Morgan SE, and Deutsche Bank. You can find more information here.
• The money in your Trade Republic account is protected up to €100,000 under the German deposit guarantee scheme.

Financial assets

• Your financial investments are completely segregated from Trade Republic. The custodians are HSBC Germany and Clearstream.
• These assets are legally owned by the investor. This means you will remain the owner of your securities, regardless of Trade Republic's financial situation;
• Your assets are covered by the German investor compensation scheme, which compensates for any unrecovered asset losses up to 90% (with a maximum of €20,000).

Practical examples:

• Financial Asset Protection: Imagine you have €50,000 invested in stocks on Trade Republic. If the company were to go bankrupt, your assets would be protected as they are held separately by custodial banks. If there were issues with segregation, the German investor compensation scheme would cover up to €20,000. In this scenario, the maximum loss would be €30,000.
• Deposit Protection: If you had €100,000 in deposits and Trade Republic went bankrupt, that amount would be fully protected.

Are the assets in my Name?

Short answer: "No," but you don’t need to worry.

The management of your assets by brokerages, including Trade Republic, is done through so-called "Omnibus accounts." "Omni" comes from "multiple," and "bus" comes from "business."

What Trade Republic does is aggregate all client positions, maintain records of these positions, and the name that appears for each asset in transactions is that of the brokerage, not yours. This is called "Street Name."

However, you are the beneficial owner (the positions are yours). This means that, although they are not directly in your name, you have control over them.

This is a common practice in the brokerage industry because it allows the consolidation of assets from multiple clients, facilitating management and transaction execution.

Additional security tips

In practice, the real risks you face are operational, fraud-related, and, subsequently, the resolution time, which can take months or years.

What is generally recommended is to have accounts with at least two stockbrokers. Not because we think you could lose all your money (due to all the protection mechanisms mentioned above), but so that your assets are not blocked indefinitely in the event of one broker's bankruptcy.

This diversification should not be done randomly. For example, it wouldn’t make sense to only have accounts with Trading 212 and Interactive Brokers, as Trading 212 uses Interactive Brokers as its custodian. If the latter fails, you would lose access to your investments in both.

Another extra precaution you can take is to export a PDF document of your portfolio every month. It costs nothing and can help regulators locate your assets.

Video summary

If you want to explore more about this security issues and hear about real-life examples of bankruptcies, check out this YouTube video. It’s about the safety, of European brokers, but the principles are the same:

Conclusion

In summary, we believe Trade Republic is a safe broker, as it is supervised by highly reputable regulators like BaFin and Bundesbank, and its users are entitled to investment protection and deposit guarantee funds if something goes wrong.

However, Trade Republic is not a publicly listed company, nor does it have a long track record like some of its competitors (it is a relatively new company). These two factors do not benefit the company in terms of transparency in its operations.

In the countries where the company operates, you will benefit from the same protection as a German investor, meaning you are entitled to up to €20,000 in protection for financial assets and up to €100,000 for bank deposits.