Plus500 Succumbs to Winning Retail Trades With Hedging Plan

(Bloomberg) -- Plus500 Ltd. has finally thrown the towel in on its policy of leaving itself unhedged against market movements after retail traders’ winning positions cost it $125 million last year.

The U.K.-listed trading platform said Wednesday it began implementing “targeted hedging, executed so far on a limited basis,” bringing it closer to the practices of peers IG Group Holdings Plc and CMC Markets Plc.

The move, announced by Israel-based Plus500 in its earnings report, comes against a backgrop of increasing interest in day trading, fueled recently by the frenzy around heavily shorted stocks such as GameStop Corp. Hedging should be helpful in reducing volatility in Plus500’s profit, Canaccord Genuity analyst Justin Bates wrote in a note.

Plus500 revealed its vulnerability to client performance back in 2019. It warned last month that it would take a hit from the fourth-quarter stock market rally that was driven by successful Covid-19 vaccine trials and the U.S. election, given that retail traders tend to be long global equities.

The group provides contract-for-difference derivatives, or CFDs, which allow traders to speculate on the price of securities without ever owning them. Users have also flocked to CFD platforms this year, with some firms implementing temporary restrictions on the type of trades they would accept after the extreme volatility that was stoked in Reddit forums.

Record Year

Plus500 said revenue jumped more than 146% to $872.5 million in what was an “unprecedented year,” as trading volume more than doubled. The firm signed up about 295,000 new customers, it said, surfing the same wave of lockdown-driven volatility that’s boosted firms from institutional brokers to retail investing platforms like Robinhood Markets Inc.

Even though the results were at the lower end of analyst estimates compiled by Bloomberg, the stock was up 0.1% at 11:25 a.m. in London.

©2021 Bloomberg L.P.