Online trading platform Plus500 shed more than a third of its market value after it revealed an 82 per cent tumble in first-quarter revenue that it blamed on “extremely subdued” financial markets.
The FTSE 250 group’s revenues shrank to $54m in the three months to March, it said in a trading update on Friday, down from $155m in the final quarter of last year and just shy of $300m a year earlier.
Companies focused on leveraged trading in contracts for difference, a risky type of derivatives trade known as CFDs, have suffered a sharp contraction in revenues since the introduction in August of tough European rules aimed at limiting inexperienced customers’ losses.
CMC Markets said last week its spread betting and CFD revenues for the year to March would be 37 per cent lower than the previous year. IG Group reported a 29 per cent year-on-year drop in revenues in its latest quarter. Shares in IG fell 3 per cent on Friday while those in CMC Markets were almost 6 per cent lower.
All three have complained of a slowdown in market activity, which has compounded the effect of the regulatory crackdown.
CFDs enable individual traders to take high-risk bets on the future performance of currencies, stocks and cryptocurrencies. Volatility has fallen in equities and foreign exchange in recent months.
The Cboe’s Vix index, known as Wall Street’s fear gauge, sank in March to its lowest level in five-and-a-half months, with volatility levels in currency trading hovering close to their lowest since 2014.
Trading in late 2017 and early 2018 also marked the peak of cryptocurrency mania, which boosted revenues and profits at the online platforms to levels they warned were unlikely to be matched.
Plus500 has also experienced a series of further stumbles.
Despite the rules, which curbed the amount of leverage sites could make available to amateur traders, it took until February to warn that this year’s profits would be “materially lower” than City forecasts because of the changes.
The company also came under fire from investors that month when it disclosed a “drafting error” in its 2017 accounts. They said Plus500 had not made any losses from “market P&L” — risk assumed on its customers’ trades — when it had actually suffered losses of $103m in that year. In the latest quarter, Plus500 said it had taken a $28.1m hit.
“While revenue in the quarter was disappointing, we have much to be encouraged about,” said Asaf Elimelech, chief executive. “Plus500 continued to lead the industry in new customer acquisition, both in absolute numbers and in the efficiency of the marketing spend.”
However, the average cost of acquiring each new customer was more than double the company’s average revenue per user, which sank to just $550 from $1,523 in the previous three months.
Plus500 said it would seek to expand into new markets as it moved to diversify beyond Europe. It also faced regulatory challenges elsewhere, however, with the Australian regulator the latest to issue a warning to companies in the sector.
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