Lots of minuses for Plus500 as shorters dig in their heels
Four funds have upped their short positions against online trading platform Plus500 so far this month, despite the firm’s upbeat ending to 2018.
Twelve funds overall are betting that the Israeli firm’s share price will fall, with stakes worth hundreds of millions against it.
Together, around 12.4 per of the firm’s shares are declared as being shorted – when investors borrow shares, selling them and later buying them back at a lower price – filings made to the Financial Conduct Authority show. Investors must make a disclosure if they short more than 0.5 per of a firm’s stock.
Many firms began shorting the stock in early autumn, and have gradually increased their positions since then.
The funds’ raised shorts suggest traders still harbour doubts about the FTSE 250 firm, which offers spread-betting services, despite it overcoming regulatory threats to report a strong performance last month.
Investors had worried that new rules introduced to protect amateur traders from incurring heavy losses would sting the firm, but it delivered better-than-expected results – claiming to have maintained a “strong momentum” throughout the year. Its share price remains around 25 per cent lower than its all-time peak in August.
Plus500 lets non-professional investors trade contracts for derivatives (CFDs), instruments that allow them to bet on stock market moves with actually buying the underlying stock. Regulators have expressed concern that CFDs allow amateurs to incur deep losses.
Read more: Plus500’s shares rise as 2018 results expected to top estimates
It also allows cryptocurrency trades, making it vulnerable to the instability which has plagued crypto over the past year.
One industry insider said the shorters would be “happy to be right before they are wrong”, adding that it could be too early to full assess what Plus500’s long-term finances would look like.
Some analysts have remained upbeat on the stock, with Liberum – which acts as Plus500’s broker – saying it had “the most excellent trading platform, the best customer acquisition machine and the lowest cost base” to expand into new markets, giving it a buy rating with a high target price.
They added investors were viewing Plus500 too negatively based on the performance of its rivals, saying: “If the market joins the dots and realises that this company is a large part of the reason for the poor new customer numbers elsewhere, then all the better.”
Peel Hunt brokers were more ambivalent, saying potential investors should wait until there is a clearer sense of the impact legislation has had.
A Plus500 spokesperson said: “Plus500’s robust financial performance for the year is a result of ongoing innovation and strong operational performance, supported by the momentum from the end of the prior year and significant market volatility during the fourth quarter of 2018.”
“While the cryptocurrency hype has diminished, it still remains a popular product on our platform and is a key element of trading due to the volatility of the underlying instruments, low dealing costs and spreads compared to owning the asset directly, with no attendant risk of safe storage.”