CFDs broker Plus500 issued a Trading Update today (see full text below), indicating some very up-and-down performance so far in Q2.

From an activity level, Plus500 continues to see record levels of client activity, which also drove the company to superb financial results in Q1. Nothing drives volumes (and revenues, profits….) at Retail FX shops like market volatility, and the past three months have seen lots of it.

However Plus500 noted that while it had generated a very healthy $249 million in spread revenue from client trading so far in Q2, a lot of that was eaten up by clients’ trading profits versus the company. As a “B-book broker” Plus500 matches client trades and takes the “other side” of unmatched client trades. But with clients making large profits – mainly last week, when equity markets rallied and major currencies rallied versus the US Dollar – it appears that Plus500 was unhedged against those client trades. So, overall, Plus500’s Q2 (so far) revenue dropped from the $249 million figure to just $102.5 million.

The full text of Plus500’s Q2 Trading Update follows:

8 June 2020

Plus500 Ltd.

(“Plus500”, “the Company” or “the Group”)

Trading Update

Plus500, a leading online service provider for trading Contracts for Difference (“CFDs”) internationally, today issues the following trading update.

Following the Q1 Trading Update issued on 7 April 2020 and the subsequent Trading Update issued on 28 April 2020, heightened levels of market volatility have persisted, and the Company has continued to see record levels of customer trading activity. Performance across the Company’s financial and operational KPIs remains strong, with the Group continuing to attract significant numbers of new customers at an attractive cost, and increased levels of activity from existing customers. The Company has added 100,574 New Customers since the start of Q2, which is already ahead of our expectations for the entire quarter, and in excess of the 82,951 New Customers added in Q1.

Revenue from Customer Income* remains at record levels, with the Company generating approximately $249.0m in Q2 to date. However, in recent weeks, most particularly, the week ended 5 June, the Company’s Customer Trading Performance** for the year now represents a gain for customers and consequently total revenue for Q2 to date stands at approximately $102.5m. The Board continues to expect Customer Trading Performance** to be neutral over time, consistent with aggregate Customer Trading Performance** representing an insignificant proportion of revenue over many years historically.

This Customer Trading Performance**, along with the average deposit per Active Customer remaining strong, has resulted in a significant increase in the level of net client deposits which are currently approximately $488.4m, three times the level as at 31 December 2019.

Plus500 is a high cash conversion business, with no debt, low capital intensity and limited capital expenditure needs. The Group maintains a substantial level of cash to support current and future levels of activity, including potential fluctuations in Customer Trading Performance**. The Company’s cash balance is currently approximately $473.9m.

As announced when reporting gains from Customer Trading Performance** in Q1, the Board expected this performance to revert to a medium-term historic level of near zero. Consequently, notwithstanding the uncertainty regarding the duration of current levels of volatility or the unquantified potential impact from regulatory changes in Australia and the relatively early stage in our financial year, revenue and profitability for the full year is currently expected to be in-line with consensus expectations, as revised following the Trading Update on 28 April 2020.  A further update will be provided when we report on Q2 trading in early July.

David Zruia, Interim Chief Executive Officer, commented:

“We are pleased the business has continued to generate record levels of Customer Income, added over 100,000 new customers so far in Q2 and has materially grown the net client deposits balance to almost half a billion dollars.

“We have consistently stated that Customer Trading Performance** is subject to significant market movements and is therefore likely to fluctuate. This is magnified during periods of heightened market volatility such as those we are currently experiencing and given the growing scale of the business. Nonetheless we continue to expect this performance to revert to a medium-term historic level of near zero and our outlook for the year remains unchanged.”

* Customer Income – Revenue from customer spreads and overnight charges.

** Customer Trading Performance – Gains/losses on customers’ trading positions.