Plus500 Ltd (lon:plus)
Plus 500 – Is This The End Of Retail CFDs Or Just One Bit Of Bad News?

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Title: Plus 500 – Is This The End Of Retail CFDs Or Just One Bit Of Bad News?
Company: PLUS - Plus500 Ltd
Share Price Then: 499p
Author: Ian Smith
Date: Fri 12 Apr 2019
Comments: Plus 500 reported revenue of $54 million for Q1 2019 compared to $297 million for Q1 2018 and $155 million for Q4 2018. The number of active customers is half what it was in Q1 2018 97K from 220K and new customers are down from 73K to 21K.

I normally watch PLUS, IGG and CMCX as a set and by and large they have had similar trends, this time Plus has changed much more than the other two. The question this poses is have Plus 500 customer’s moved or withdrawn from the market?

The reason for a big part of this change is well known, the recent FCA regulation on leveraged products has really started to kick in.

In a similar period IGG reported a drop of around 30% from £278 million to £202 million in UK/EU and CMCX reported a drop in revenues of about 37%.

The Plus 500 site has the warning 80.6% of retail investor accounts lose money when trading CFDs with this provider. In some ways this can be read as 20% do make a profit but again I think that the time has passed when many people would read it that way.

IGG report 76% lose money and CMCX reports 77%, from memory these numbers are going down but not by enough to draw any firm conclusions but they might br suggesting that the platforms are slowly losing those people who shouldn’t really be trading in CFDs.

Personally I am frightened by leveraged products and have never used them, I accept that there are a small number of retail investors who can successfully use them but I believe that many people who have used them have simply been lucky or have accepted their losses and decided that the products are not for them.

I suspect that Retail CFDs are becoming more established and better understood and the reductions seen by IGG and CMCX are more reflective of the true state of the market.

Plus 500 seems to have been most affected by reduced leveraging, something not totally surprising as my impression is that they were using leverage levels as part of their business development strategy more than CMCX or IGG.

As leverage has been reduced the benefits of trading on margins reduce and those excited by the possible gains see smaller upsides and the reality of the offering weighs more heavily.

I certainly do not understand the rally that the Plus share price had this morning and believe that it is probably entirely day trading related, I was expecting a drop down to something close to 200p.
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