One of the leading UK-based spread betting and CFD brokers, CMC Markets plc., has issued a company announcement underlining that it was on track to beat last year’s EBITDA of £52 million, after the first half of this fiscal year ending on September the 30th abounded with good news.
The announcement outlines that trading volumes at CMC Markets have increased almost 10% year-on-year, as its Next Generation platform enjoys substantial client growth with active clients rising by 19%, while the trade count spiked 30%.
New account applications are up by 37% when compared to the same period of last year, and reactivation rates have exceeded 22%. With the results in the first half of the fiscal year including only September as a major month of growing volatility, the period of slow markets has been weathered well at CMC Markets.
The net client churn rate on the Next Generation platform stands at +29%, partly due to a new cash rebate program totaling £2.9 million which was offered to eligible clients. As clients are trading more volume they are rewarded with a cash rebate which is withdrawable – a strategy which CMC Markets is using to minimize its exposure to the low volatility environment.
While this can be a good volumes retention tool in the short run, it is quite unlikely to result in good rates of client retention in the long run. There is evidence to suggest that the more clients trade the more losses they incur over time.
Experienced foreign exchange and CFD traders shared with Forex Magnates that they are not willing to engage in any rebate programs, because having a bigger number of trades usually comes at the expense of balance losses.
Regarding this assertion, the company has commented to Forex Magnates saying that “CMC Markets’ rebates programme simply rewards clients in cash based on spread turnover. This cash can be withdrawn or traded at the client’s discretion with no catches or obligations, and can be used to increase position sizes rather than the number of trades.
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“Forex Magnates’ research is based on a specific use of rebates – increasing number of trades – which is only one of the potential uses, and as such it is misleading to suggest that experienced traders shun them. Furthermore, CMC Markets is a responsible broker focusing on experienced traders and does not seek to engage in the high-volume ‘churn-and-burn’ model. Our financial results show the success of this strategy.”
According to preliminary data, October trading activity remained strong with revenues and turnover rising 56% and 62% on a year-on-year basis.
As of the end of October, the CMC Markets’ capital ratio was 24% (296% pre CRD IV) and its own cash reserve amounted to £128 million. As in the previous year, the Group will pay an interim dividend.
The company has expressed its commitment to continue developing the Next Generation platform and also announced plans to launch new products.
The company’s CEO, Peter Cruddas, said in the announcement, “When I returned as CEO, I laid out a clear strategy; to get the Next Generation platform correctly positioned, to offer strong client retention and loyalty programmes and to create a premium service and trade execution with transparency at its heart. We needed to generate trust and loyalty amongst our client base and to work with them to improve our platform and service.”
“We are well on the road to deliver our strategic transformation and that can be seen through our growing turnover and incredibly positive client churn. Achieving this during low levels of market volatility shows the sustainability of the business plan and the Next Generation platform. It is also testament to how hard everyone at CMC Markets has worked over the last year,‘’ he concluded.
The firm’s CEO shared in recent UK media reports that the company would consider floating the company in the future, however there are no immediate plans for an IPO at present.