Disclosure: Short PLUS. This content is not directed toward persons with residence or place of business in the United Kingdom. By accessing, transmitting, or reviewing this material, you acknowledge that the author has represented his honest opinion and made statements of fact believed to be true at the time of publication. No content herein should be construed as a recommendation to take action with respect to any security.
Part 1: Short Plus500
Part 2: Bucket Shop
Part 3: Customer Lifetime Value
Part 4: Companies House Inconsistencies
Part 5: Audit Opinions
Part 6: Unlicensed Activity
Part 7: Whois Plus500?
Part 8: Scalping
Part 9: Worldwide Web
Part 10: Competition
Part 11: Unanswered Questions
Part 12: Legal Consequences
Plus500 claims to be a client of Interactive Brokers. I haven’t been able to verify that.
If you’ve read this far, I hope I have at least conveyed why I take statements from the management of Plus500 with a grain of salt. Given the company’s history of unlicensed operations, inconsistencies in its filings, and its exaggerated marketing claims, I want to leave you with one simple question—would you do business with Plus500?
Neither would I. And I was surprised by the notion that my own custodian would. In Dan McCrum’s piece after the Swiss Franc peg was was removed in January, Gal Haber told the Financial Times that Plus500 uses Interactive Brokers when it needs to hedge. This immediately struck me as odd—Interactive Brokers has a competing CFD offering. Unlike Plus500, Interactive Brokers charges a fixed commission rather than a spread-based fee, and my understanding is that although the firm acts as principal, it makes offsetting trades in the underlying instruments. In other words, Interactive Brokers is not a bucket shop.
Why would Interactive Brokers facilitate the growth of a competitor? Why wouldn’t Plus500 have hedging relationships with the major banks (e.g. Barclays) that hold its customer balances? Moreover, the size of the notional exposures Plus500 claims to need to offset, even occasionally, would make Plus500 a very significant client for Interactive Brokers.
Given the business risk associated with working with a company that has admittedly operated outside the law in some jurisdictions—including places like Singapore and Hong Kong where Interactive Brokers’ business is growing rapidly—it seems like a questionable business decision for them to maintain a client relationship with Plus500.
Since Cable Car’s clients custody with Interactive Brokers, I care a great deal about their reputation. Naturally, I relayed some of my concerns about Plus500 to the company. The response was interesting. Interactive Brokers is a large firm, and its US representatives may not have complete visibility into every client worldwide, especially if the client may have been referred by an introducing broker. That being said, they could not confirm that Plus500 is a client.
Whether or not Plus500 works with Interactive Brokers, they clearly don’t trade enough to merit much attention. This stands to reason. The simplest explanation for why Plus500 was profitable during the Swiss franc debacle is that they simply didn’t hedge at all. Amusingly, the Plus500 hedging policy document is an empty redirect to the homepage. Customers were net long EURCHF; Plus500 was net short. Any negative customer equity balances did not reflect money Plus500 owed to any third party. Instead, Plus500 would have booked the customer’s entire account balance as trading revenue.
This concludes my series on Plus500. I look forward to feedback from readers and clarifications from the company. If there are any errors or omissions in these posts, please do not hesitate to let me know so that I may correct them. Thank you for reading.