Plus500 shares slump to two-year low after revenue collapses

By Muvija M

(Reuters) - Quarterly revenue at online trading platform Plus500 collapsed to less than a fifth of a year earlier, hurt by lower market volatility and a European clampdown on highly leveraged betting which is hammering retail brokers.

New rules reducing leverage and protecting amateur retail investors from heavy losses have been in place for a year but are only beginning to show up more dramatically in results of Plus500 and peers like IG and CMC Markets.

A cryptocurrency boom that was in full swing at the start of 2018 has also collapsed, with bitcoin trading at around $5,000 from highs near $20,000, adding to the platforms' problems.

Plus500's revenue sank to $53.9 million in the first quarter from $297.3 million a year ago, sending shares down 43 percent to a two-year low of 399.7 pence and dragging IG and CMC around 5 percent lower.

Brokerage Peel Hunt said it had been a tough quarter and cut its full-year profit forecast by a third. "There is risk that the low trading activity in the first quarter is a new normal."

Last year, European regulators imposed restrictions on the sale of contracts for difference (CFDs), which allow traders to bet on financial asset prices without holding the asset.

They also cut leverage limits on the opening of a position by a retail client to just 2:1 from 30:1, making it harder to make money on a single trade but also harder to lose heavily.

LESS VOLATILE

The company's statement stressed the impact of a general fall in volatility, which limits the scale of the swings in asset prices on which traders make money.

The VIX volatility index, Wall Street's main fear gauge, surged to as high as 36 percent in the fourth quarter but has since retreated to around 14 percent.

"Given the level of global political and economic news, financial markets were surprisingly subdued in the period, which reduced the number of trading opportunities for customers," Plus500 Chief Executive Asaf Elimelech said.

Analysts and traders, however, said the rules on leverage were likely playing a big role in a drop in customer numbers and trading. Plus500's number of active customers dropped to 97,921 in the first quarter from 218,187 a year ago.

More than half its revenue for the quarter came from clients outside the European Economic Area, not limited by the new curbs. Average revenue per customer fell to $550 from $1,363.

The sharp drop in Plus500 shares came despite the company having warned in February that revenue and profit would fall short of analysts' expectations this year.

Earlier this month, CMC forecast a drop in income in the year to March as new rules curbed client activity, while IG Group last month reported a near 30 percent drop in trading revenue.

(GRAPHIC: Share performance of British online trading platforms, https://tmsnrt.rs/2IeYh8M)

(Reporting by Muvija M and Noor Zainab Hussain in Bengaluru; Additional reporting by Helen Reid in London; Editing by Patrick Graham and David Holmes)