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Why the SelfWealth (ASX:SWF) share price fell 7% on Monday

After an impressive growth phase since the COVID-19 pandemic, the SelfWealth Ltd (ASX: SWF) share price fell 7% on Monday following the arrival of a new Australian low-cost trading platform targeting the younger generation.

What does SelfWealth do?

SelfWealth is an online trading platform that aims to provide retail investors with a simple, yet low-cost user experience. It boasts $9.50 flat-fee brokerage without any account fees or commissions. Up until recently, this has been Australia’s cheapest online broker.

The COVID-19 pandemic has provided the perfect storm for SelfWealth, as the platform benefits from both up and down movements in the share market. Record low-interest rates and nationwide lockdowns have incentivised retail investors to seek returns in a low-cost trading environment.

In the FY20 results, SelfWealth reported revenue of $8.6 million, up 313%. It also saw total trades of 659,131, up 299%. Most importantly, the number of active traders using the platform was 46,445, up 235%.

What caused the SWF share price to drop on Monday?

A new Australian trading platform called Superhero launched on Monday, which hopes to challenge other low-cost platforms by charging a flat fee of $5 with a $100 minimum trade value. The new venture is backed by Larry Diamond, founder and chief of Zip Co Ltd (ASX: Z1P). Afterpay Ltd (ASX: APT) co-founder Nick Molnar was also involved in a previous funding round.

Superhero will use innovative new ways to hold members’ shares in their accounts. Most traditional brokers assign members an individual Holder Identification Number (HIN) on the ASX’s CHESS system. Instead, Superhero will hold members’ shares in a single special-purpose HIN. Superhero will move away from manual processing and allow these cost savings to be passed onto members.

Are SelfWealth shares a buy?

There is high growth priced in at the current share price for a company still running at a loss. In saying this, SelfWealth is in a large growth phase and is planning on providing access to US equity markets for Australian residents by the end of the year.

It remains to be seen how many of its users decide to switch to other low-cost trading platforms, which could hurt the company’s market share. Even if this is the case, a highly successful US launch could more than outweigh the loss from domestic competitors.

I will be keeping my eye on the SelfWealth share price and assessing the impact of Superhero and other competitors on its performance.

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Disclosure: At the time of publishing, Patrick owns shares of Zip Co.
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