Plus500 Share Discussion Threads

[fenners66] 30/11/2017 09:09

Bitcoin rose , then fell 20% and then rose again yesterday
But falling 20% so rapidly could have taken out customer stop losses?

[planelondon] 29/11/2017 22:19

Alan00,

The mis-match is too big a risk to take. It’s was did for Alpari UK, Liquid Markets, and a few others when the SNB removed the floor on the Swiss franc/euro in January 2015. They all went bust due to loses from hedged positions with their counterparties. Their customers, who were on the other side of the trade all got left with relatively small negative balances, that were highly unlikely to be collected.

Hedging might remove market risk but it introduces other risks. Better to face the customer risk yourself. Limit lose by a combination of widening spreads, increase premiums, reduce expiry periods, leverage and contract size. Decline new trades. Even after all of that, if customers do well, it’s more than likely they will go on to spend it at Plus500 in the future.

By having a limited number of instruments (2,200) and 90,000 pq global active customers, I would imagine 99.99% of the time the trading book is within its risk limits and plays true to the amount of the spread being charged against the volume being traded over a 12 month period.

Overall the spread represents 95% of customer’s losses and 5% is paying premiums. It’s not difficult to see how. If you’re trading bitcoin on $1000 margin, 5 times leverage, mathematically you will exhaust your $1000 margin after 20 trades at today’s spreads. There isn’t much leftover for market PL.

[alan00] 29/11/2017 19:09

Interesting point about the mis-match in risk if Plus do hedge, given the limited loss customer accounts. However, I don't follow the general idea that Plus only hedge minimally. They state "Revenues from Market PL was nil in both FY 2016 and in FY 2015" appreciate some positions will offset, but for the remainder how would they not have market PL unless they were hedging?I also thought they had suggested previously they were in line with regulatory ideas about not benefiting from customers losing, which I thought related to them being hedged so making the spread either way. If anyone has links to backup how they hedge that could be useful.

[sailing john] 29/11/2017 17:04

As I mentioned earlier I opened max available positions in all 10 crypto instruments this morning including £2k in Bitcoin before contract size was reduced to £400 (this is in the demo acct)
Total investment exposure of around £30k requiring a margin of just over £6k
I have checked occasionally and at one point today I was up about £800 including the initial spread cost
I'm currently down £800 so very volatile and probably impossible to trade successfully
I look forward to seeing how much overnight premium PLUS take
An interesting experiment!
SJ

[sailing john] 29/11/2017 14:16

Also moved contract size to just 0.05 about £400 and spread to 108, overnight premium remains 0.5% - I think IG closed their long book on cryptos a few days back. So anyone new won't be able to take much of a position in Bitcoin with PLUS and might invest in other cryptos or move on to more balanced instruments.

[planelondon] 29/11/2017 11:48

TT, funnily enough, Plus500 have in the last hour reduced bitcoin leverage to 1:2.

My guess is Plus500 cant hedge the risk so they will now head toweards declining it.

[aakash30] 29/11/2017 11:25

Thanks for the helpful comments SJ/PL

[planelondon] 29/11/2017 11:20

TT, with you on the Alphaville comments.

The problem with Plus500 hedging bitcoin is that you just can't place the levels of exposure they will have in the market on similar terms. Assuming Plus500 have USD 25m of net bitcoin exposure, which countetparty would take that from a single instutional customer? My guest is none and certainly not on 1:5 leverage. That leaves the only other option of buying on exchange. The problem with that is, it would most likely have to be 100% margined and the real issue is the mismatch in contractual terms and downside risk -
bitcoin falls 20% and Plus500 takes the hit on their counterpartie position but Plus500 customers don't, as they have negative balance protection. That's a problem. The answer isn't hedging, its just not doable in the crypto asset class at the moment. The answer is you just dont take the exposure in the first place. You do this by making it less and less attractive for your customers to take positions. If need be, you even decline trades you dont want. This is the approach I think Plus500 have taking over the last couple of days.

This may change on 8th December when the CME offer bitcoin futures but it doesn't change the mismatch in risk I have highlighted above.

[sailing john] 29/11/2017 11:10

The most significant moves they have made is to reduce contract size - currently just 0.25Contracts/Bitcoin less than £2k/customer. PLUS have also reduced contract lengths the latest Bitcoin contract is only 3 days (previous expired last night)
I have a demo account and have opened the maximum position in all 10 crypto offerings - it isn't much about £30k exposure in total and I have negative P&L currently due to opening spread. Will be interesting to watch over a few days/weeks when overnight premiums added to the wide spread.
I assume most real money customers will get tempted by other cryptos if they can only invest about £2k (£400 initial margin and £200 maint margin) in Bitcoin. Likely to be a cheap way of getting new customers even if PLUS make a small loss (value if not %) on some crypto trades

[aakash30] 29/11/2017 10:58

Fair points PL and yes my understanding too is that they hedge minimally. However, given the extreme one sided nature of the flow (and sharp price trend higher) I would be very surprised if they don't hedge (or start hedging). If they leave it unhedged it is a punt on mean reversion in Bitcoin and it falling sharply which may or may not happen. If I was running the business, why would I open myself to that risk?

Agree with your point on the overnight premium but given the magnitude of moves it doesn't cover much IMO (<30% maybe, <50% for sure).

[travellingtrader] 29/11/2017 10:33

Good points PL.

Not quite true on hedging though. Chief executive Gal Haber told FT Alphaville that “we need to hedge very rarely” in 2015. I would assume for bitcoin they do hedge more than for FX/equities. But they will certainly have felt heat from their crypto exposure.

Sub USD500 AUAC is also rather ambitious. But you never know. It certainly should have continued falling substantially.

[planelondon] 29/11/2017 10:21

Plus500 don't hedge client positions. This has been confirmed many times over the years by the FD. It's also evident from the daily P&L charts provided in the investor presentations. It's one of the reasons why Plus500 have a low capital requirement compared to IGG, as they have no need to place and retain margin with market counterparties.

Plus500 have taken countermeasures against bitcoin's recent relentless rise by reducing leverage, increasing overnight premiums (0.5% for longs) and removing bitcoin from frontline marketing while pushing other cryptos to the forefront. Data in the Q3 presentations indicates average customer trades are being held on average 24 hours rather than the usual 2 hours previously. The increase in overnight premiums will go some way to mitigate the bitcoin rise. At 0.5% per day, that's a charge of 3.5% a week or 14% a month. Whilst not higher enough to outrun the recent rise of bitcoin, it will certainly help.

Plus500 will be feeling some heat on their trading book from the recent moves given the bitcoin book is 90/10% long. However, this is likely to to be short-term and most likely worth the pain as it will be doing wonders for new customer numbers and AUAC. Expect record customer numbers, low marketing spend and sub USD 500 AUAC for Q4.

[pbutterworth1] 29/11/2017 09:36

Bitcoin nasty crash/correction coming, will do PLUS no harm. Buy PLUS, not Bitcoin :-)

[pbutterworth1] 29/11/2017 09:33

For the record, PLUS DIV appeared in all my Hargreaves Lansdown accounts 27th November

[aakash30] 29/11/2017 08:53

I spoke to an exec at IG recently. They said they hedge crypto much more tightly (relative to other asset classes) as all one way flow. Imagine Plus would be doing the same for Cryptos.

[nurdin] 29/11/2017 08:43

I only hope they hedge every trade there!

SP looking good.Seems to me the market is brushing aside previous concerns about the impact of the up coming regulations..

[sailing john] 29/11/2017 08:19

Bitcoin blasts through 10,000 overnight - 10600 currently!
Should make a few front pages around the world - plenty of free advertising!

[sailing john] 28/11/2017 10:19

I hadn't spotted that PLUS have, for the first time, produced a Quarterly results presentation that provides a little more info than the TS (previously only produced presentations for FY and HY)

[metis20] 27/11/2017 17:53

Divi credited to my iii account on Friday 24th.

[sailing john] 27/11/2017 17:45

Re divi - Halifax credited already but not expecting Selftrade for a couple of weeks! (based on past performance)

[pbutterworth1] 27/11/2017 16:16

sp turned off 930p shoulders following div, as predicted. Will be over £10 in a few days, driven by (inevitable) fundamentals. Still cheap cf rivals of course

[sailing john] 27/11/2017 08:23

Another surge in Bitcoin price over the weekend to 9700. Expect a lot of column inches at 10K!!! (already getting some in advance)

And this from the link below - cryptomania gone mad!
"The largest US Bitcoin exchange said that it added more than 100,000 accounts over Thanksgiving, bringing its total account base to 13.1 million."

[sailing john] 24/11/2017 17:14

Pepperstone moves into cryptos - good to see others following PLUS even though adds a little competition

[nurdin] 24/11/2017 16:22

on a slippery slope now...could be an overreaction to the upcoming regulations and therefore may provide a buying opportunity down the road.

[interceptor2] 23/11/2017 08:27

Thanks for the divi reminder sj, I had forgotten about this.

Thought that the CMCX results were very good today and the chart looks appealing, but I prefer to hold PLUS, I am not involved in Crypto mania but like the idea of participating via an PLUS.

It's fascinating to watch a mania/bubble unfold, shame I was smart enough to buy a few bitcoins 5 years ago.