Trading 212 doubles net profit in 2021, shifts focus towards stockbroking
An unprecedented boom in retail trading helped Trading 212 earn handsome fees from its clients’ trades, resulting in a 75% jump in revenue of the fiscal year ending December 31, 2021.
Per its filing with the UK companies house, the FCA-regulated broker said revenue from online trading jumped to £94 million compared to £54.2 million in the year earlier.
The solid revenue was, however, partially offset by soaring operational costs which increased 55 percent during the period. Citing increased staff costs and other expenses involved in up scaling the business, the operational expenses were reported at £42.4 million in the FY 2021 compared to £27 million the previous year.
As a result, Trading 212 earned £45 million in net profit, up 104% over a yearly basis from £21.9 million in 2019.
T212 has seen incredible levels of growth over recent years. Revenue has grown from £2 m in 2019 to £54.3 million in 2020, and then to £94.1 million in 2021, while profit/(loss) after tax has improved from (£0.3 million) to £21.9 million, and then £45.3 million over the same time.
Net assets have also increased during this time due both to the retained profit in the business as well as a £20 million share capital injection. Net assets now stands at £94 million, up from £29 million at the end of 2020.
In 2020, Trading 212 had temporarily halted the on-boarding of new users as its platform came under pressure to keep up with the huge growth in retail investing, which caused severe operational difficulties. However, the company has, since February 14, re-commenced the daily onboarding of a limited number of customers, with the intention to resume full onboarding thereafter.
Other business highlights
Trading 212 was the first retail UK broker to offer commission-free trading and its core product portfolio consists of stocks, ETFs, FX, and derivatives products.
In terms of CFD products, the company operated from January 2021 to May 2021 on a spread revenue model, profiting from the difference between the prices offered to clients and those on which hedging trades were conducted via a back-to-back hedging agreement with a group affiliate. From May 2021 onwards, T212 opted to end this arrangement to manage its own risk based on defined parameters for each product and asset class, hedging exposures outside of these with third parties.
For the stock trading business, the company operates a zero-commission model where clients do not pay commission for trading nor custody fees for the assets held. Instead, T212 earns fees from clients when they trade in a currency different to that in which their cash was deposited, and through a collateralised stock lending program.
From January 2021 to August 2021, T212 operated via routing all orders through to counterparties, but after that date the broker operated as a systematic internaliser (‘SI’). This means that the company now internalises a large volume of trades by acting in a principal capacity to customer buy and sell orders, and holds inventory on its balance sheet.
While operating both a CFD and a stockbroking platform, T212 continues to shift focus towards stockbroking with the growth strategy delivering increases in client money and asset balances from £2.1 billion to £2.9 billion.
T212 said it has invested significantly in the UK entity and its operating model. This included increasing its share capital by an additional £19.8 million and cash reserves by over £90 million. The FCA-regulated brokerage has significantly boosted its headcount in the City, with further recruitment plans to grow to circa 70 by the end of Q3 2022.
Outside of the UK entity, and following Brexit, Trading 212 revealed that it plans to transfer some of its clients around the group. This will see the UK entity transferring circa 14% of its clients (all being EU clients) to the new Cyprus entity, while the Bulgarian entity will also be transferring its client to either the Cyprus or UK entity.