After deciding you want to start investing, the next natural step is to look for a brokerage to do so. Trading 212 is one of the most popular options thanks to its simple platform and low costs. However, it’s natural to have concerns about the safety of your assets (including uninvested cash) on such investment platforms.
Is investing through Trading 212 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 safeguards you can expect.
Highlights:
- Trading 212 is supervised by the Financial Conduct Authority (FCA) and the Australian Securities and Investments Commission (ASIC), both considered reputable regulators;
- Investors are covered by the Cypriot Investor Compensation Fund, which protects investors up to €20,000 (assets + cash);
- Client assets are segregated from Trading 212’s assets, meaning they are stored separately from the parent company’s assets;
- It offers additional insurance of up to €1 million per client;
- Trading 212 is a private company (not publicly listed);
- Trading 212 does not have a banking license in most countries (Germany is an exception), so deposits are not protected by any deposit guarantee scheme (protection up to €100,000), but by the Investor Compensation Fund (mentioned above).
Who regulates Trading 212?
Trading 212 is regulated by three distinct entities across its subsidiaries, and as such, the associated protections also differ:
From here on, we will focus only on the first: Trading 212 Markets Ltd. As an European resident, this will most likely be the subsidiary through which you open an account, as you will notice during registration:
This means it is a company based in another EU Member State (Cyprus, in this case) and is authorized by the regulatory authority of the country of origin (CySEC), in accordance with the rules of the Markets in Financial Instruments Directive II (MiFID II).
It is under the primary supervision of the regulatory authority of the country of origin, but your local country regulator can monitor its operations in your country, especially in cases of misconduct.
What protections does Trading 212 offer?
Asset segregation
All brokerages in the European Union are required to separate the assets belonging to the company from those belonging to the investors who deposit their money there. As such, Trading 212 also adopts this system.
To clarify, this requirement is established in the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR), as well as in complementary regulations and guidelines from the European Securities and Markets Authority (ESMA).
All assets are custodied by two entities:
- Interactive Brokers;
- Bank of New York Mellon (the largest custodian bank in the world).
These institutions are responsible for safeguarding your investments in segregated accounts, meaning they are always separate from Trading 212’s assets.
What about cash in the account?
You’re probably asking this because you’re taking advantage of the interest rate offered on uninvested cash and may even already have a Trading 212 debit card.
Your funds remain secure, benefiting from all protection measures, including asset segregation and regulatory safeguards.
The partner banks Trading 212 uses for euros are:
- J.P. Morgan;
- Barclays.
Here’s an example from my account:
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Additional insurance of €1 Million
On its “Regulation and Protection” page, Trading 212 does not mention the existence of insurance provided in partnership with Lloyd’s, covering up to €1 million per client.
However, in this document, it is stated that clients of “Trading 212 Markets Ltd.” can benefit from this insurance if necessary.
Investor compensation fund
Finally, there is the Cypriot Investor Compensation Fund, which protects client assets (including uninvested cash) up to €20,000 per person, per institution.
Therefore, if you have two accounts with the same broker, each with €20,000 (€40,000 in total), your protection will be up to €20,000.
This is a mechanism that should only be used as a last resort, in case the company becomes insolvent and, for some reason, cannot return the assets to its clients.
Other safeguards
In addition to the measures mentioned above, Trading 212 states that it adopts a set of measures, including:
- Daily Reconciliations: They reconcile their internal records daily with those of their custody partners to ensure your investments are accurately accounted for;
- Due Diligence: They conduct rigorous due diligence processes to verify that custody partners comply with all regulatory requirements to keep client assets safe;
- External Audits: Grant Thornton, an external auditing firm, annually reviews the company’s internal processes to confirm compliance with all asset protection obligations.
Practical example
Let’s imagine you open an account with Trading 212 (remember: through the subsidiary Trading 212 Markets Ltd) and decide to invest €25,000 in ETFs.
Two weeks later, Trading 212 declares bankruptcy and cannot return the assets. The Cypriot Investor Compensation Fund would cover up to €20,000 per investor.
In this case, you would lose €5,000 (€25,000 - €20,000).
It’s worth noting that, in most cases, even if the company goes bankrupt, your assets would simply be transferred to another broker, thanks to asset segregation. In other words, the compensation fund should truly be a last-resort mechanism, used in extreme cases, such as fraud.
Additional details about Trading 212
According to this page, Trading 212 provides additional information about the company:
- Trading 212 is a private company (not publicly listed);
- The company has been profitable every year since its founding in 2004;
- It has no debt and maintains solid cash reserves;
- It does not use any client funds for its own hedging or margin trading operations;
- It lends client securities but requires 102% collateral as a guarantee, adjusted daily.
Are the assets in my name?
Short answer: “No,” but you don’t need to worry.
The management of your assets by brokerages, including Trading 212, is done through so-called “Omnibus accounts.” “Omni” comes from “multiple,” and “bus” comes from “business.”
What Trading 212 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 issue 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:
Final consideration
Trading 212 presents itself as a reliable investment platform, with a wide range of security measures to protect investors’ assets. Regulated by CySEC, FCA, and ASIC, and benefiting from mechanisms such as asset segregation, external audits, and additional insurance of up to €1 million, the brokerage demonstrates a strong commitment to client safety.
Although assets are not directly in the investors’ names, the “omnibus accounts” structure ensures they remain under the effective control of the owners, in line with industry-standard practices. The Cypriot Investor Compensation Fund and reputable banking partners like Barclays and J.P. Morgan provide an additional layer of reassurance.
Despite all these guarantees, it is prudent to diversify investments across more than one broker to avoid potential delays in accessing assets in extreme cases. Additionally, simple practices like exporting periodic portfolio reports can be helpful in resolving potential issues.
