Robinhood in Italy: what are the alternatives?

What's Robinhood?

Robinhood is one of the most popular apps in the United States and allows investors to buy and sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. The company was founded in 2013 by Baiju Bhatt and Vladimir Tenev and gained significant attention for its commission-free trading model, which disrupted the traditional brokerage industry in the US. They were one of the first apps to introduce fractional shares, which enabled users to buy and sell smaller portions of expensive stocks.

Over the last few years though, their revenue model has been scrutinised by both users and the regulators. They make money through payment for order flow, which has become controversial because data shows that it leads to worse stock prices for investors. Let's dig a bit deeper.

Robinhood Crypto is available in Italy

Before we dig into Robinhood's business model, they did launch their cryptocurrency app in 2023 across the European Union. This is through an account with Robinhood Europe, UAB, which is registered in Lithuania. They are registered as a virtual currency exchange and depository wallet operator. However they only offer cryptocurrency services and you can't use the full Robinhood app.

Robinhood's business model: payment for order flow

Since the beginning, Robinhood has faced quite a few controversies. You may remember the GameStop saga in 2021 when the company faced backlash and legal challenges due to restrictions it imposed on the trading of certain stocks. Many argued that the restrictions favoured institutional investors over individual investors and hindered the principles of a free market.

Their business model, based on payment for order flow (PFOF), is controversial too. Robinhood executes trades on behalf of its users by routing their orders to market makers. These market makers pay Robinhood for the right to execute these trades and receive the order flow. Market makers then profit from the bid-ask spread and liquidity provided by the trades of Robinhood users.

Say you want to buy 100 shares of Company XYZ, trading at $10 per share.

1. Instead of sending your order to a traditional stock exchange, Robinhood sends it to a market maker firm, such as Citadel Securities.
2. The market maker finds a seller selling at $10.00, buys those shares, and sells them to you at $10.01, earning a $1 profit.
3. The market maker also pays Robinhood a small fee (e.g., $0.001 per share or $0.10 for your order) for routing the order to them. This is the payment for order flow.

Through this process, Robinhood earns money without charging you any commission. But it creates conflicts of interest between you and Robinhood. Brokers have a duty to provide "best execution" for investors, meaning getting the cheapest price for you when buying a stock, or the highest price when selling. But this is under threat in the PFOF model. After all, Robinhood will route your order to the market maker that will pay them the most, rather than the one that will give you the best price. So you may end up getting a worse price when trading through Robinhood than through a broker that doesn't make money through PFOF.

Why you can't use Robinhood in Italy

Only US residents can become Robinhood customers. Robinhood does not allow Europeans to use their service, and they have no plans to launch in Italy. The regulatory framework in the European Union is different than in the US, requiring them to make many changes if they were to enter the European market.

Fortunately, there are other ways Italy can invest in stocks:

1. Investing with a European neo-broker app
2. Investing through an app like Curvo

Let's take a closer look at these options.

Alternatives to Robinhood for Italians

There are a couple of apps that have launched in Europe and are following a similar path as Robinhood for Italian investors. They allow you to easily invest in the stock market and pick your favourite companies. Let's take a closer look at a couple.

Trade Republic

Trade Republic is the closest Robinhood clone available in Italy. Trade Republic is a "neo-broker" meaning it's modern and fresh in comparison to older brokers. They are backed by some of largest venture capital firms in the world including Sequoia. In total they have raised over €1.1bn in order to become the leading trading app in Europe and have launched in 17 countries. Trade Republic claim to have over four million customers, spread across the countries they've launched in.

They have a similar controversial business model based on payment for order flow. In other words, they make money from selling your orders. As written in their terms: “In connection with the execution of transactions in financial instruments, Trade Republic may receive payments from the operators of the execution venues or counterparties of the execution transactions” (see section 4.2. of their customer agreement). So although you'll pay less commissions than with other brokers, you may end up paying more through a higher price when buying, or selling at a lower price.

Trade Republic is a foreign broker which means you'll have to do the administrative work yourself. As an Italian investor, you'll receive an annual tax report from Trade Republic. You'll have to manually take that date and input it into your tax reports. You'll have to declare your income, capital gains as well as the IVAFE (wealth tax).

Fineco

Although this option was created over 25 years ago, we think it's important to mention it as it's one of the leading brokerage apps in Italy. Fineco, based in Italy, is an independent direct bank offering integrated services across banking, credit, trading, and investment. It stands as a European leader in brokerage and maintains one of Italy's largest networks of financial advisors. Today it has more than 1.4 million clients and more than €100 billion in assets.

In a similar vein to Robinhood, Fineco is optimised for traders. You can run complicated orders such as trading CFDs. A CFD, or contract for difference, is a risky type of derivative that allows you to speculate on the price movements of underlying stocks or currencies, without actually owning the underlying asset. Instead, a CFD is a contract between you and Fineco, in which you agree to exchange the difference in the price of the underlying asset between the opening and closing of the contract.

One of the main risks is their high leverage, which means that you can control a large position with a relatively small amount of capital. While leverage can amplify gains, it can also amplify losses, and investors can quickly lose more than their initial investment. Additionally, CFDs can be complex and difficult to understand, particularly if you're new to investing. Before trading in CFDs, you should carefully consider the terms of the CFD contract, including fees, margin requirements, and the potential risks and rewards. Because of these reasons, most investors lose money when trading CFDs.

Fineco is a lot more useful than Trade Republic when it comes to taxes. It offers the possibility to choose between the declarative and the administered regime for your taxes. In the case of the declaratory regime, you will have to calculate the taxation yourself, while for the administered regime, Fineco will act as tax withholding agent by applying any applicable taxation. You will be able to monitor the capital gains/losses realised by consulting the tax section in your Fineco account.

We've seen a couple of apps where you can buy stocks easily. But is it really the best approach as an investor? Let's unpack the drawbacks of stock picking.

The dangers of stock picking

Some people manage their own portfolio of individual stocks. It's fun and exciting, it's easy to get started by installing one of the two apps mentioned above, and you get to invest in the companies you love. But in all likelihood, your return will be inferior to ETF investing, a type of investing we'll discover in the next section.

First of all, it is very time-consuming if you want to do it well. And you should if you're investing your life savings! You need to do the research to convince yourself that a particular stock is undervalued by the millions of investors around the world. You then need to decide when you will sell. It's best to decide this up-front to reduce the risk that you will make investment decisions based on your emotions. An investor's emotions are his worst enemy.

Also, when you buy a stock, you have to remember that there's another person on the other side of the transaction who's selling you their stock. Every transaction in the stock market is basically a trade in opposing views. This other person can be an individual investor like yourself. But only about 15% of trading happens by individual investors like you and I. So most likely, they're a professional at a hedge fund, a large bank or another financial institution. And there's a good chance that they have access to much better information than yourself that made them decide to sell the stock. Investing is their livelihood, and they have entire departments of analysts supporting him in his work. So from the moment you buy the stock, the odds of the bet turning in your favour are already against you.

Finally, only a relatively small number of stocks perform really well. Most stocks actually don't perform that well. But identifying these "superstar" stocks in advance is incredibly challenging. And if you don't own the ones that do really well, you're much more likely to underperform the market. This skewness makes stock picking really hard.

Why ETFs are better than individual stocks

There are several reasons why investing in ETFs is one of the best ways for Belgians to grow their wealth, in comparison to trying to pick winners from the thousands of stocks available.

Low-cost

One of the problems associated with active investing are the high fees. Every time you buy or sell a stock, you incur a broker cost and taxes. Index investors pay lower fees because index funds are very cheap to run. It's simple to track an index: all that is required is buying the stocks in the index, and update when the index changes. It doesn't require expensive analysts or other specialists.

Diversified

One of the goals of index investing is to diversify as much as possible. Through diversification across many countries and sectors, you eliminate unnecessary risk. And you also benefit from the growth of the best companies in the world, not just the large German, French or American companies you know. By investing in as many companies as possible, you're almost sure of including the winners, namely the minority of stocks that are responsible for most of the returns.

You can invest with low amounts

Another advantage of ETF investing is that you don't need a lot of capital to get started. You can even invest with as little as €50. This makes ETF investing possible for everyone, especially young people who just started their career and want to grow their wealth by putting their savings.

Great for beginners

ETF investing is one of the best ways for new investors to start investing. It's a proven strategy and doesn't take too much time to set up. Furthermore, it's a lot less risky than investing in individual stocks, or trading in highly leveraged instruments like options of CFDs like some of the apps above offer.

It just works

Long-term index investing has worked in the past. And there's no reason it shouldn't work in the future. Just take the global index MSCI World as an example, which is composed of 1,500 companies across 23 countries. It has delivered an average yearly return of 10.6% since 1979.

The challenges of investing in ETFs through a broker

Even when investing in ETFs, there are challenges when using a broker like Fineco or Trade Republic:

• Asset allocation. You have to choose the ETFs and set up your portfolio of different funds to match your goals and level of risk. Are you just going to have stock ETFs in your portfolio, or allocate some space to bonds? How do you make that choice?
• Tax implications. It's vital to get a good understanding the Italian tax system because you don’t want to pay unnecessary taxes or having to pay a fine.
• Learn how to rebalance. Over time, your portfolio may no longer be suited to your financial situation or time horizon. It's your responsibility to make sure your portfolio is aligned with your goals at all times.
• Brokers aren't aligned to your goals. Brokers earn money per trade. This means they make more from customers who trade often. So as an ETF investor with a buy-and-hold strategy, you're a bad customer for them. Their incentives are conflicting with yours.

That's why we built Curvo. By taking care of these complexities of investing, together with NNEK (the investment firm with whom we partnered up and who manages the portfolios), we make it an easy and smooth process for you.

Best alternative to Robinhood in Italy: Curvo

We created Curvo to address the challenges of investing in the stock market from Italy. We started investing through a broker ourselves. Our founder Yoran spent hours researching and figuring out how to build an optimal portfolio to prepare for his financial future. He read books, scoured the web and got lost on Reddit. Finding the right resources was challenging.

From this experience, he realised why none of his friends were setting up their own investments through a broker: it's too complicated. At the same time, we've seen that ETF is such a powerful tool to grow our wealth. So it made sense to build something to solve this problem. Enter Curvo.

Diversified portfolio built for you

We understand that it's hard to build the portfolio that's right for you, so creating an account starts with answering a questionnaire on your investment goals and your appetite for risk. You’ll then be assigned the best portfolio of index funds that matches your goals and risk tolerance. Each portfolio is managed by NNEK, a Dutch investment firm supervised by the Dutch regulator (AFM). They're globally diversified and invest in over 7,500 companies.

Sustainability at the core

Your investments on one guiding principle: don’t invest in companies that are considered destructive to the planet. This means that sectors like non-renewable energy, vice products, weapons and controversial companies are excluded.

Built for monthly investing

You can set up a monthly savings plan where your selected amount is automatically debited from your bank account and invested in your portfolio at the start of each month. This way, it's easy to adopt the best saving habits. Also, you are not charged any transaction fees. Lastly, your investments through NNEK support fractional shares, meaning all your money is invested. So Curvo is ideal for monthly investing.

Discover how it's the best alternative to Robinhood in Italy.

Summary

Robinhood has revolutionised the brokerage industry in the United States with its commission-free trading model and fractional shares. However, controversies surrounding its business model, particularly payment for order flow, have raised concerns about potential conflicts of interest and unequal treatment of individual investors. Additionally, Robinhood is simply not available in Italy and can only be used by US citizens.

For Italian investors, there are alternative apps that offer similar features to Robinhood. Trade Republic is an option but it has the same business model as Robinhood, so it operates with potential downsides such as the possibility of getting worse stock prices. You may be better off using an Italian broker like Fineco if you're looking to buy stocks.

While individual stock picking may seem appealing, it can be time-consuming, emotionally driven, and challenging to consistently outperform the market. ETFs are particularly suitable for beginners and have a proven track record of long-term success. However, investing through brokers like Fineco or Trade Republic can still present challenges, including asset allocation, tax implications, portfolio rebalancing, and misaligned incentives. Curvo is the best alternative to Robinhood in Italy. Through the Curvo app, you can easily do automated monthly investments with NNEK through fractional shares, making it an ideal option for Italian investors seeking a simple and effective approach to ETF investing.