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 The question this poses is have Plus 500 customer’s moved or withdrawn from the market?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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Previous Commentaries On Plus500 Ltd
Date Share Price Author Commentary
Tue 12 Feb 20191004pIan Smith

Plus 500 – I Have A Problem With The Whole Business Model!

Plus 500 are a provider of CFDs, Contracts For Difference and as far as I can tell this is all they offer, especially in the UK.

Today’s big 30% plus drop was not due to the latest trading figures, but due to a warning that regulation is likely to hit the business in the future.

This warning is not a surprise as regulation has forced their web site to have a message at the bottom of screen that says “80.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.”

Added to this the preliminary results include “Exceptional first quarter benefitting in particular from Cryptocurrency trading;”

This does not reassure me that it has a customer base that is making informed trading/investing decisions and will be there for the long term or that departing customers will be easily replaced.

I know people who have bought Cryptocurrencies as their first investment and got into trouble and others who got into trouble when BetFair first opened, so it seems that there is always a new supply of people willing to take bigger risks than they really understand.

CFDs are complicated and not something that a newbie can just sign onto a site and make a quick first trade so getting high volumes of new clients is likely to become difficult and expensive, especially as in the past CFDs for retail clients was something new and are now becoming better understood.

As Plus 500 only deals with retail customers it is possible that it can find or sustain growth in other areas of the world with a more liberal attitude to CFDs or can find a way to create a new product that is not regulated so heavily.

Yet I have to wonder if one day shareholders will wake up and find the company has been regulated out of business!