If you run quality and value based screens with Stockopedia it won't be long before you encounter Plus500 an Israel-based online provider of Contracts for Difference (CFDs).
The financial performance is very impressive, with strong growth 45.7% CAGR, Huge Margins 45.9% and a return on equity of 92.4%. Add in a P/E ratio of just 9.3 and a dividend yield of 7.7% and it looks like that rarest of beasts, a high quality, high growth stock at a bargain price.
I thought so and invested in March 2017 after the price drop. I recently thought I would open a Plus500 account to see what they offer to their customers. However, when you read the small print you can see why they there is a high likelihood that the business will eventually be shut down by the regulators and shareholders will be left with nothing.
I sold my entire holding into yesterday's Q1 results rally and I will be keeping clear from now on.
The problem with Plus500 is that they are not in fact a broker who places CFDs with an exchange. They are a "bucket shop".
From Their User Agreement:
"The trading you conduct on the Trading Platform is not conducted on an Exchange or a market. We act as counterparty (which means the other side) to the Transactions conducted on the Trading Platform which means that we act as the buyer when you offer to Sell an Instrument and the seller when you offer to Buy an Instrument"
i.e. if a customer profits, they lose, if a customer loses they profit.
There would seem to be an obvious conflict of interest here!
If the trades were based on genuine market movements then there would be little opportunity to exploit this.
However,
1. Plus500 control the prices on their system, they are not the actual market prices!
From Their User Agreement:
"Our prices may differ from the current prices on the relevant Exchanges and you acknowledge that a Transaction may or may not be triggered even though an Exchange never traded at the level of your Transaction"
"The prices we offer on the Trading Platform might not be the best prices available and we may offer different prices to different users."
"You acknowledge that any prices quoted on the Trading Platform are set by us taking into account a variety of factors .... You undertake and agree not to use the prices quoted on theTrading Platform…
