Your Capital at Risk Part 10: Competition 22


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.


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22 thoughts on “Your Capital at Risk Part 10: Competition

  • Reply
    Gioa

    Great, indeed great work
    I have investigated this company for six months now and have come to similar conclusions, taking the liberty to call them a fraud.
    I do have reason to believe that “Dror Sordo” does not exist and no person by such name has ever set foot on British Soil.
    There is more to all this, much more – and I venture to say it’s organized crime in the background pulling the strings, as is the case with many gambling sites. Notably, most Cyprus bucket shops are owned by Israeli companies who’s founders and employees are IT specialists like Shlomi Weizmann at Plus500.
    As we all know, the subsidiaries pass on the virtual business to the parent in Israel. The parent company, listed in London, is NOT licensed to conduct such business – a fact that authorities apparently pay not attention to. It’s a different legal matter when the parent is licensed and passes on the business to an unlicensed subsidiary……
    If you like to get in touch with me, feel free. You got my email address.
    Criminal charges will be filed within days. A company that turns clients limit orders into stop orders is just plain fraudulent. Period. There is nothing to add and I can prove my statements, too

  • Reply
    J.P.

    Excellent analysis.

    Assuming these allegations turn out to be correct, it calls into question the competency of the FCA, ASIC, and CySec.

    And why is the FCA just now objecting to Plus500′s AML deficiencies?

  • Reply
    Rytis

    If, I’m the customer of +500, and my account is frozen at the moment. What is the best think to do at situation like this? Which institutions are investigating the company? I need my money back. By the way, trading for me, with +500, was profitable sins the day of freeze-up.

  • Reply
    MM

    May I add a part from the Useragreement here, especially interesting concerning the EURCHF:
    The User Agreement says about hedging “we may”# 10.2, followed by the extraordinary remarks: “In the event that we are unable to hedge your transactions with other third parties we reserve the right to amend the Content or terms of an instrument including the expiry date, the trading hours or any other parameters in the instrument details tab”

    Isn’t that a full license to fraud?

    • Reply
      PM11

      A complete list with all conflicts between the current User Agreement (v27) and valid British law has been submitted to the FCA many weeks ago, in detail. Until now there was no relevant reaction.

      • Reply
        MM

        Interesting PM, I have been doing the same. WIth Gioa to be specific. Are they asleep at the FCA? Is the AML procedure a smoke screen? Or is it that Paul Boyle (ex FSA, ex CFO of the FCA) is Director at Plus500?

  • Reply
    MM

    Or maybe this:
    16.FORCE MAJEURE EVENTS
    16.1. We may, in our reasonable opinion, determine that a Force Majeure Event exists. A
    Force Majeure Event will include, but is not limited to, the following:
    16.1.1. any act, event or occurrence (including without limitation any strike, riot or
    civil unrest, act of terrorism, war, industrial action, acts and regulations of
    any governmental or supra national bodies or authorities) that, in our opinion,
    prevents us from maintaining an orderly market in one or more of the CFDs in
    respect of which we deal on the Trading Platform;

    16.3. You agree that we will not be liable in any way to you or to any other person in the
    event of a Force Majeure Event, nor for our actions pursuant to Section 16.2, if we
    decide to take such action. The parties shall be released of all responsibilities for
    partial or full non-fulfilment, as well as for improper fulfilment of the obligations under
    this Agreement, if such non-fulfilment or improper fulfilment was a result of a Force
    Majeure Event, which occurred after the Client Agreement was concluded.

    • Reply
      MM

      Added with Useragreement 16.2
      16.2. If we determine that a Force Majeure Event exists, we may without notice and at any
      time, acting reasonably, take one or more of the following steps:
      16.2.1. alter your Margin requirements; which may result in you being required to
      provide additional Margin;
      16.2.2. close all or any of your open Transactions at such closing prices as we
      reasonably believe to be appropriate;
      16.2.3. suspend or modify the application of all or part of the Client Agreement to the
      extent that the Force Majeure Event makes it impossible or impracticable for
      us to comply thereto; or
      16.2.4. alter the Trading Hours for a particular Transaction.
      16.2.5. Void all open transactions in affected Instruments.

  • Reply
    Nick J

    Hey there,

    This is quite a comprehensive analysis, yet I cannot say I am am agreeing with half of it.
    Before I begin, I wanted to say that I am affiliated with plus500, but I am also affiliated with 20+ other brokers, so I don’t have any interest in defending plus500 here. Below I will provide just my honest opinion about the broker and the article itself.

    What I feel is that you are trying to blame plus500 for the whole Market Making FX Industry (well, you use Bucker Shops to describe Market Makers). You might be surprised, but plus500 is not the only Market Maker, in fact the largest part of the retail FX brokers are expecting their clients to lose. I cannot say it is a bad thing, it is only bad if the broker starts messing up with clients’ trading. For example, one of the oldest brokers – Oanda, has never been rejecting that it is a Market Maker.

    As for plus500 history, I’ve been observing them for the last 5 years or more and what I want to say is that they have substantially improved in the last few years. Some years ago (before listing), plus500 seemed as one of the FX Scams. Since then, they have improved their offer (which still sucks compared to top class brokers), conversion process and the whole public image. Yet what I want to say is that plus500 would be in my top 20% of the trusted brokers, if we look at the retail FX industry as a whole.

    I believe that Jacob has missed to check plus500 partner’s program. Long story short, plus500 offers CPA (Cost Per Acquisition), which can go as high as 600 USD. Having said this, you may check plus500 spreads and realise that they would make about 30 USD in spreads at 100,000 USD volume. In other words, a client would need to turn over on average at least 20 million USD so plus500 could compensate enough to its affiliates. If it was making profit on spreads of course….Yet most of the FX brokers would offer CPA to its affiliates and not every broker that doesn’t offer CPA works under Agency Model.

    To conclude, I feel that plus500 is a broker that has managed to become a legitimate service provider after having a long off-shore operating history. Even though it is a Market Maker, so is 80% of the whole industry and there is nothing wrong with it as long as the company is not making a life of a trader harder. Should you go short on plus500? I personally would not as I do feel that this company is here to stay due to the good back up from affiliates and easy conversion funnel. Should you trade with plus500? I would never do it, due to the inferior platform and weak trading conditions.

    • Reply
      Jacob Ma-Weaver Post author

      Hi Nick,

      It’s interesting to hear the perspective of an affiliate. I find it rather odd that you would never trade with Plus500 yourself due to the platform and trading conditions, yet feel there is nothing wrong with the company so long as it “is not making the life of a trader harder.” Yet that is precisely what it does if customers lose money and the trading conditions are poor, or even misleading. As you note the business model is reliant on customer losses, and you express skepticism at the amount of trading volume that would be required to justify even the affiliate commissions. However, Plus500 claims only 1% of their revenue comes from customer losses. Do you believe this?

      In the US, market makers are closely regulated exchange participants trading standardized instruments. They do not create derivatives out of whole cloth for retail investors. The semantics matter in this regard.

      • Reply
        Nick J

        Hey,

        Just to add a bit of clearance. By poor trading conditions I mean high spreads. By poor platform I mean just weak Plus500 webtrader.
        I cannot say they have anything misleading in their conditions. It is just not designed for someone who considers himself just a bit as a serious trader. Yet I cannot say they mess up with your trading. No, I don’t believe that 1% is generated on Market Making, I’d rather say 1% is generated outside of Market Making.

        Well, looking at the US retail FX market, I cannot say it is a good example of how the business suppose to be done. You guys don’t have good brokers, technologically advanced platforms, amazing promotions, good conditions for affiliates and even for traders. It certainly protects people that don’t know how to trade and want to make millions out of their 1000 USD deposit, but it kinda limits the possibilities of good traders. As a result, many US traders have to go for off-shore scams that may not even return their deposited amount.

    • Reply
      PM11

      You are right about the fact, that most retail traders end up with losses. Just, a serious provider can’t take risks to possibly have highly qualified traders as customers – with larger amounts, making money – without covering some risks at the real market. Plus500 has no market relations at all. And they are able to spend 44% of net new money on marketing. For you and other affiliates, internet marketing, TV spots and sponsoring. No other provider would be able to survive on such a rate! Plus500 is able to do this only due to manipulating orders and quickly defrauding customers by their deposit – and most customers don’t even realize the fraud as they don’t keep track on market prices and so on.

      • Reply
        Nick J

        You see, that’s the beauty of Plus500. Their platform and conditions are designed that way that no serious trader would ever touch them.

        I don’t think they manipulate and I don’t think you have any proof of their manipulation. Retail FX is similar to casinos when it comes to money mathematics. You don’t have to do anything in order to be profitable, in fact, manipulating would make your reputation worse and traders wouldn’t go to you.

        So yeah, I wouldn’t be saying much negative stuff about Plus500. Compare them to the rest of the market players. Need a hint? Check out the recent stuff about IronFX. I personally stopped promoting them as their services seemed to be not acceptable even in the eyes of affiliates.

        • Reply
          Jacob Ma-Weaver Post author

          I suggest you use the platform and see if you still feel that way before continuing to promote it.

          • Nick J

            I try to use every broker that I promote. Plus500 is probably the 3rd most used platform for me (thankfully to their no-deposit bonus).

        • Reply
          PM11

          Yes, there is proof of manipulation. With screenshots. And comparisons with neutral charts showing everything the exactly the same time. Examples: After the customer clicking for his order, they freeze the screen and give you a bad price that appeared in that period of time. Or a price that did not exist at all in the market. Plus500 invented expiry dates on usually non-expiring products and set the expiry date to a Saturday evening. In case a customer runs into a margin call, they’d close the position before your money possible could arrive. If the money arrives, the position suddenly exists again. No closing, no trace of the procedure. And the customer thinks, well, he was too late and closed the position – and does not realize it’s open again. Possibly creating more losses. Leading to the next margin call… Also here: Proofs exist. It’s really insane and unseen in the market what Plus500 does.

          • Nick J

            Got any link to check the manipulation?
            Usually, Market Makers are not technologically developed in terms of clearing the orders, hence with Plus500 you can easily expect an order to take minutes if you are profitable and been set to clearing. Same thing would happen with almost ANY Market Maker.

            In any case, I think I will quit this conversation as it has started to take some of my time and I seem to have my interest lost. The main point that I wanted to state is that Plus500 is not a scam, it is one of the off-shore brokers that has managed to become extremely wealthy and successful in just a few years. Don’t try to blame the whole Market Making industry on them.

          • PM11

            To Nick: Plus500 is not really a market maker, but simply a “bucket shop” with no trading relation to any other market participants i.e. banks or brokers. And it’s not only scam, but pure fraud. Pieces of proof have already been submitted to the FCA with real customer’s names and account numbers and so on. I would have to scan through some pieces of evidence to see what could be easily made anonymous to upload somewhere or send by e-mail.