The Risks of Using An online platform for Lifelong Savings: Why Caution Is Key

While taking my classes, I've been told that most of my students support the idea of using an online platform to invest their savings, which are often not based in Hungary and therefore not subject to Hungarian regulation.

In the following table, I list the most common online platforms I heard about during my lesson, along with a brief description of each. Some of them are constantly updating their local registration, so please remember to check if they are registered locally at MNB.

These platforms are popular because they provide access to global markets and often offer lower fees or a better user experience than Hungarian banks and brokers.

Although platforms like these have made investing more accessible, particularly for younger or tech-savvy individuals in Hungary, there are crucial risks that cautious investors should be aware of before investing their life savings:

1. Limited Investor Protections An online platform operates as a fintech app and is not a full-scale, regulated brokerage or bank. Depending on their jurisdiction, your investments may not be covered by traditional investor protection schemes, such as Hungary’s National Deposit Insurance Fund or the EU’s investor compensation frameworks. This can leave your assets more exposed in cases of platform failure or fraud.

2. Market Volatility and Loss Potential An online platform allows trading in volatile assets such as stocks and cryptocurrencies. Without professional advice or risk controls, significant losses can occur quickly, especially for those investing money they cannot afford to lose.

3. Lack of Personalised Financial Guidance An online platform offers a DIY investing experience with little to no personalised advisory support. For investors unfamiliar with complex markets, this increases the chance of making costly mistakes driven by emotion or incomplete information.

4. Platform Fees and Operational Risks: Despite promoting low fees, an online platform’s pricing structure typically includes currency exchange fees, limits on commission-free trades, and potential inactivity charges. Technical issues or sudden policy changes could also disrupt your ability to trade or withdraw funds.

5. Taxation Risks: Calculating Taxes Is Your Responsibility. One of the most significant hidden risks for Hungarian investors using an online platform is tax compliance. Unlike traditional brokers based in Hungary, which often provide tax reporting or withholding services, an online platform does not automatically calculate or remit capital gains taxes for its users. This means:

• You are responsible for accurately calculating and declaring all investment income (capital gains, dividends, crypto gains) to the Hungarian tax authorities. 

• Failure to properly report or pay taxes can result in penalties, fines, or tax audits.

• The complexity of cross-border transactions, currency conversions, and crypto trading further complicates tax compliance. I have also personally faced the difficulties of explaining to a local accountant all the transactions I conducted using my online platform. 

• For many investors, this imposes a significant administrative burden and risk, especially without professional tax advice.

6. Regulatory Uncertainty Fintech platforms operate under evolving regulations that may change your rights or access. Cross-border investments could expose you to complicated tax treaties and reporting requirements.

Summary Points I used to share with my students:

• Local brokers (MNB-regulated) provide stronger investor protections, a local legal framework, and easier tax compliance in Hungary. 

• International platforms offer a wider product variety, sometimes lower fees, and innovative features, but they also come with higher regulatory and tax risks.

• Understanding these trade-offs helps investors select the best broker as a long-term partner, based on their priorities (security, cost, and market access).

• You must collaborate with your accountant or tax expert and share all your activities with him/her.

Disclaimer

The content of this article is intended for educational purposes only and does not constitute personalised financial advice. The strategies discussed are most effective when understood within the broader context of the investment principles covered in my advisory course. If you haven’t attended the course, I strongly recommend doing so before applying any of the ideas presented here. Click here to know more: www.bankingadvisory.hu