Plus500 Share Discussion Threads

[planelondon] 29/3/2018 10:09

BGW1970 is correct as anyone who understands the bookkeeping of a CFD operator and Plus500, in particular, will understand.

From an accountancy perspective, Plus500 provide a short-term 'balancing function' to the inter-period p and l as part of their internalization.

IG take a different approach and outsource part of this process, by hedging with an external counterparty.

The outcome is identical for the customers but not the shareholders.

[bgw1970] 29/3/2018 10:09

chucko- thanks, yes, agree with all that. The CEO said recently that their loss ratio, which is known to the FCA, is significantly lower than the industry average. Before too long we will see the number.

[bgw1970] 29/3/2018 10:06

aakash - yes, precisely - and you see from the daily P&L which they always show in their presenntations that they have significant negative days as a result, from time to time but, on balance, they've been getting it more right than wrong, for a long time.

[chucko1] 29/3/2018 09:51

BGW, although what you have said has already been posted, and not that long ago, it is always useful to remind everyone who might care about these important facts.

In particular the zero p&l from markets. This challenges meaningfully the thesis that PLUS look to trade against their clients. Even if thy did, they do not succeed in which case there is no loss to clients other than the very small spreads they incur and the overnight premiums (financing spread, effectively). But we know all that and it is the only business model that makes any sense (other than the low cost nature of what they do and superior algorithms).

If all PLUS’s clients lose money quickly, their average balances provide lower spread and financing income for PLUS. It is therefore in PLUS’s interest to hope they are successful. Of course, such market trading is likely in totality to have little benefit to their clients as this is more of a gambling clientele than an investment one (arguably). Therefore, the clients eventually lose their money to PLUS, on average, through spreads and financing. The more they leverage, the quicker that will come to pass but it should still take quite a while assuming 2% overnight financing margin and very small spreads for most contracts. But this is the same as dealing with any enterprise, especially banks. The average margin (NIM) that Lloyds Bank makes across its entire and vast asset base is about 2.75%.

Given the above, the game is successful for PLUS mostly in almost direct proportion to the product of number of clients and their activity. And activity is much more a function of volatility than direction, it would seem, although some compelling evidence (one way or another) about this may be presented at the next update. Of course, to a degree, volatility and direction are interrelated and this is where PLUS is really useful from a portfolio diversification standpoint - ie if you like it, you ought to REALLY like it.

[aakash30] 29/3/2018 09:35

The big difference between IG and Plus's business is about risk management. IG hedges or internalizes a majority of its risk while Plus doesn't. Now if you offer negative balance protection, and hedge your clients positions you get in trouble as clients can lose more than their deposit but you still have to make good on your hedge. The CHF debacle with negative balance protection would have been much worse for IG. This is also why IG is trying to get as money customers as possible onto professional status where they dont have to offer negative balance protection. Plus for the most part dont have that problem.

From a clients perspective, it doesnt matter if Plus hedges or not. You are by and large getting the same outcomes if you trade on either Plus or IG (spreads are tighter based on my experience on Plus but premiums higher). The argument that Plus is bad because it doesnt hedge would only apply if they intentionally did things to make you lose money or kicked out profitable clients. I for one have had a good experience with them being profitable with Plus (and IG) for over a year and havent seen anything untoward.

[bgw1970] 29/3/2018 08:48

Glavey- I am not. Happy to engage on specifics. The co. stated 89% of revenues from spreads in 2017 and 11% from overnight premiums and zero from market P&L. Page 10 of the full year results presentation.

[sailing john] 29/3/2018 07:56

CMCX TS
Active clients down, ARPU up but costs increased.
Only just introduced Cryptos - presumably after seeing PLUS's customer growth in Q4
CMCX price likely to ease a little today? (Edit Mr M appears to like it +8% at 8.30.)

[glavey] 29/3/2018 04:44

BGW, I think you are guessing, but not that well.

[bgw1970] 28/3/2018 22:09

Bob
[1} "their"
[2] you are right that IG hedges a lot, while PLUS has a risk budget for each market, but you miss that that is not how PLUS makes its money. They, and all the others, make their money from the spreads. That's what takes people's money over time- a small spread on a substantially leveraged deposit will, over time, take all your cash. IG will say that they are good and PLUS is bad, but, strangely enough, it's not that simple. It is true that clients have had higher leverage through PLUS, and for that matter CMC, than through IG, but that's not all there is to it.

[noujay] 28/3/2018 21:54

They are all at it. For gods sake this is no place for choirboys!

[dennislevine] 28/3/2018 20:38

You should read the IG Group reports and presentations - specifically look for the phrase "internalisation benefit"

[bobmonkeyhouse] 28/3/2018 19:07

It is reflected in the share price

IG deal in the market so a punter is not betting against them. PLUS want you to lose because that is how they make their money. Some very strange things have happened with PLUS, I still do not trust it

[bgw1970] 28/3/2018 16:50

[1] In what way is your view not reflected in the share price?
[2] In what way are they worse than IG/ CMC?

[bobmonkeyhouse] 28/3/2018 16:09

Its aa horrible company. They set out to fleece mug punters.

[bgw1970] 28/3/2018 16:08

Why, Bob? It's just a platform, it has provided negative balance protection since day one, it never offered binaries.... Sure, it has offered some big leverage, and leverage tends to be toxic, but that is an issue only of degree....

[bobmonkeyhouse] 28/3/2018 15:20

I dont like PLUS though its a horrible company.

[chucko1] 28/3/2018 15:05

Bob, I almost never short anything, but were I to, TSLA (Tesla) outdoes PLUS in awfulness any day. At least PLUS has not actually killed anyone yet.

There is a serious point buried somewhere in here. It has a beta with the FTSE of 0.7 and that leaves it exposed, at least in the short term, to the wider market. I really do not like the wider market and in particular, it concerns me that the US tech stocks are capable of bringing everything crashing down as people realise that:

1. Tech is far more hype than actuality (both Uber and Tesla with recent fatalities) and in the case of Tesla, very poor sales (update from them very soon).

2. Reaction against data theft and insecurity etc. which affects the $3trn FANGS “sector” in a pretty fundamental way. Already seeing P&G pull their advertising for the most part. Others looking closely.

Of course, PLUS should act as a hedge, but until this stock is better understood, at least on a daily basis it does not.

However, when you repeat this exercise looking at monthly data, you get something completely different. PLUS does differentiate itself as all the large news items eventually get digested, with outsized movements one way or another.

[bobmonkeyhouse] 28/3/2018 14:40

I might be soon though

[stuffee] 28/3/2018 14:31

Bob

I'm relieved!

[bobmonkeyhouse] 28/3/2018 14:14

I am not short at the moment

[stuffee] 28/3/2018 12:49

I wander whether Plus will now seek a Full Listing?

I have been encouraging them for ages. A Full Listing would attract further funds who are prohibited to play around in AIM, add further credibility to its rating, enhance analysts' coverage and most importantly would force various Index funds to take positions as Plus would soon enter the FTSE 250 at the next quarter day - these funds would then have to buy and hold some 7% of the capital.

Understandably Plus has been reluctant to pursue whilst Regulatory uncertainties were hovering and the Board had other priorities. With ESMA's statement clearing the air, I would hope this will be fixed soonest.

Bob, El Cap et al, for your sakes, watch any short if such announcement is imminent. I don't think the Market has made allowance for likely lift off.

[pbutterworth1] 27/3/2018 20:25

I have been fully in now, with PLUS my biggest holding, for over two years. Never bothered by crypto nerves, in fact finding that just to be more grist to the mill, although admittedly played havoc with previous modelling. The story continues.... When I get out I will disclose :-)

[sailing john] 27/3/2018 19:09

c1 - totally agree and Odey are trading serious volume and are in (or out) for the longer term. Much easier for PIs to trade to take risk off. I was fully out in Dec 17 because of crypto nerves but immediately bought back the FY TS in January. I'm not wedded to PLUS but it is undervalued compared to IGG and CMCX so I'm mostly in and overweight unless there is a Regulatory risk on the horizon.

[chucko1] 27/3/2018 18:58

Could well be - I was looking only at daily closes. In fact, even your execution could have been more perfect(!!!) I can say with the advantage of a monitor looking at minute by minute information on the relevant days. But as we all know, such things are always easier in the rear view mirror.

Whenever I have sold at a peak, I know that it is no more than luck and vice versa. There are those (plenty) who do it better than me, but then I am managing risk and that requires that I phase an investment in or out depending on my perception of risk and reward. That is a gradual, not binary, process.

I do not suppose Odey give a jot about even being 60p away from perfection as their strategy is to hold until the price exceeds their view of the then forward risk. This might suggest why they are still maxed out as they would appear to still rate this as exceedingly cheap (as already posted, they see some unknown multiple of the current share price - it will be interesting to see next Fact Sheet on Hanbury’s fund) given their view of the risks (one of which is now substantially reduced).

[sailing john] 27/3/2018 18:47

Re Rolls Royce vs Skoda - I used to post this chart occasionally last year - says it all really!

Comparative chart from 6th Dec 2016 when FCA tightening proposals caused market correction