I have a friend who's a very experienced and very successful investor - and he has just bought a tranche of shares in them. I struggled to get him to shut up - such was his enthusiasm for their fundamentals. From the perspective of a shareholder (as opposed to one of their clients), he thinks Plus500 are the absolute bees knees. Certainly, last year appears to have been a great year for them: Plus500
My view is that their current level of growth is unsustainable and I can't explain their apparent success to date. As jordanshl suggests in the OP, based on their recent growth - you'd think we'd all be using them and singing their praises. For my friend's sake, I just hope that their good fortune isn't as a result of activities that warrants the attention of the FCA.
So, are the likes of JP Morgan continuing to pile in based on past results - or do they (and other investors) know something about Plus500 that their clients don't? According to my friend, Plus500's figures knock spots off any other broker out there. The question is: why? What makes them soooo much more profitable than anyone else?
When you see JPM on the shareholder list, it's not the bank JPM owning the shares, they are the clearer or prime broker of a number of funds who will use CFD's to avoid certain taxes for the fund. In this way, JPM comes up as beneficial owner when they almost certainly aren't.
They seem to be significantly more profitable than other brokers and they operate in quite a few countries. Apparently only 4% of people visiting their site are from the UK. Despite that, their App is downloaded more often than IG markets.
Their churn rate is also ridiculously high which probably explains the profitability....mugging customers tends not to draw repeat business... HOWEVER, they are generating money absurdly quick
Their revenue wouldn't grow if enough clients didn't become active clients and not only deposit their own funds but also lose that money trading.
Israeli firms have the affiliate side of this business nailed on. They have taken the tired model of acquiring clients one by one from small IB's and created sites where owners of any type of website can log on to the plus500 affiliate site (for example) and pull banners to their own websites and hey presto have become in an instant one of 50,000+ sites that promote plus500.
It's so simple.. its marketing on a mass scale like this industry hasn't seen before. If you want to have a visual of how big affiliate marketing has become then pop along to the London Affiliate Show and see how many massive gambling firms are present and the huge expense they have gone to to stand out.
Plus500 will pay affiliates up to $1,000 to bring them every client, when you compare this with someone like IG who pay maybe 25% of the spread to their IB's and tie them up in knots with contracts and insist on the IB being regulated its no surprise that the way plus500 and other Israeli firms tempt introducers is beating the offers of the traditional spreadbet/cfd firms hands down...
the thing that confuses most people who are looking closely at plus500 (and lots are because we cant work out why clients would stay there once they see the trading conditions) is why their market cap is so high.. why do investors believe that this company is the real deal when most people think its a balloon that should have popped ages ago!!
it's got me stumped.. I half love it because its a great success story but the worrying half of me thinks its all going to end up pear shaped..
I can only speak from my experience, but the people I know who have used plus500 are drawn by the £20, they then try their hand by loading a few hundred quid after they realise that £20 barely covers the spread.
In essence, you are absolutely correct that the marketing efforts of plus500 are exemplary. But I think the clients being attracted are the same people that sports gambling sites attract with the free bet offers... They aren't traders, if they were, they wouldn't be using plus500 unless I am missing something? When they start offering zero spread on the FTSE....sell your shares! Worldspreads alert.
Without wishing to take the thread off-topic - as an aside - I thought I'd post an offer I've received from ETX Capital on the back of several phone calls from them in as many weeks wanting me to deposit more funds. I've been a client of theirs since 2008. This is the offer . . .
We can offer you a bonus until the end of the month.
The bonuses work on the basis of your deposit.
from 1,500 GBP deposit - 20% Bonus
from 2,500 GBP deposit - 35% Bonus
from 5,000 GBP deposit - 50% Bonus
from 10,000 GBP deposit - 60% Bonus
from 15,000 GBP deposit - 75% Bonus
This rather knocks Plus500's £20 bonus into a cocked hat. I don't know what the T&Cs are as I have no interest in the offer but, on the face of it, it strikes me as being a little desperate! It's not zero spreads a la Worldspreads, but it's a sort of variation on the marketing theme.
Plus500 probably added a lot of accounts with people wanting to take a CFD on BTC/USD and LTC/USD, I know I opened an account last year to do this and made some nice returns shorting BTC/USD from $1200.
It's about the only way to a take a short position on Bitcoin at the moment.