Plus500 announced this Monday that its board has raised expectations for this year’s financial results. In a statement, the contracts-for-differences (CFDs) broker noted that volatility over the last quarter was higher than expected and boosted the firm’s performance.
In the first quarter of the year, Plus500 experienced a surge in new customer acquisition and trading volumes. Reflecting a global uptick in investor activity, this was also a result of the cryptocurrency craze that swept across the world at the end of 2017 and the beginning of this year.
Today’s statement notes that new customer acquisition and trading activity returned to “more normal” levels last quarter. Despite this, the firm was able to report a stronger than expected performance.
Plus500 attributed their strong performance to higher volatility driven by political uncertainty. The CFD broker noted that the US import tariffs proposed by President Trump had been key in driving market volatility.
Professional traders to the rescue!
Perhaps more interesting than Plus500’s stronger outlook for the year were the broker’s comments surrounding the European Securities and Markets Authority’s (ESMA) new CFD regulation.
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Set to go live on August 1st of this year, EMSA’s regulation will put caps on the amount of leverage brokers can offer. Firms will also be subject to substantial marketing restrictions.
There is, however, something of a loophole to the regulation. Clients that list themselves as professional traders will not be subject to the new laws. In its statement today, Plus500 revealed that approximately 12 percent of its client base could be classified as professional traders.
Those 12 percent of clients were also responsible for 75 percent of Plus500’s revenue in the European Economic Area. The firm has previously noted that its revenue is likely to be impacted by how many clients request to be reclassified as professional traders.
That this is the case is indisputable. The broker is still likely to take a hit as a result of ESMA’s new regulation, but the damage can be mitigated if it can reclassify a substantial portion of the clients, who make up that 12 percent, as professional investors.
This has wider reaching implications for the industry as a whole. If other firms have a similar set of clients, who are responsible for the bulk of revenues and can be classified as professional traders, then they can drastically reduce the impact of ESMA’s regulation. Whether this will occur or not remains to be seen.